MOODY'S CONFIRMS BMW AG'S A1 LONG TERM DEBT RATING
New York, 03-31-98 -- Moody's Investors Service confirmed the A1 long term senior debt rating of Bayerische Motoren Werke Aktiengesellschaft (BMW) following its announcement of an agreement to purchase Rolls-Royce Motor Cars (Rolls-Royce) from Vickers Plc. Moody's confirmation is based on Moody's expectation that BMW will maintain its consistently strong profitability, moderate leverage and substantial liquidity after its acquisition of Rolls-Royce. Moody's noted that future rating actions would depend on the company's ability to integrate the operations of Rolls-Royce and on the performance of its weaker operations during a downturn.
Ratings Confirmed include:
BMW AG – A1 euro medium term note program.
BMW Australia Finance Ltd. – A1 guaranteed eurobonds.
BMW Coordination Center N.V. – A1 guaranteed euro medium term notes and guaranteed index linked euro medium term notes.
BMW Finance N.V. – A1 guaranteed eurobonds, euro medium term notes, floating rate eurobonds, zero coupon eurobonds, and Swiss bonds.
BMW U.S. Capital Corp. – A1 rated guaranteed eurobonds, euro medium term notes, floating rate euro medium term notes.
BMW (UK) Capital Plc. – A1 rated guaranteed eurobonds and euro medium term notes.
Vickers Plc announced and BMW confirmed on March 30, 1998 that an agreement had been reached to sell Rolls-Royce Motor Car to BMW for 340 million pounds sterling (approximately $572 million). BMW has indicated that it intends to further invest approximately $1.68 billion into Rolls-Royce to upgrade its production capabilities and expand the company's product line. This is the second time in four years that BMW has purchased a turnaround operation requiring substantial capital investment. In 1994, BMW purchased an 80% interest in Rover Group Holdings Limited for 800 million pounds sterling. BMW has invested over $2 billion in Rover which it predicts will not reach break-even until fiscal 1999.
In an effort to ensure the maintenance of its moderate leverage position, BMW has announced a stock issuance plan which may yield proceeds substantially similar to the purchase price of Rolls-Royce. This capital structure is in keeping with the conservative approach to leverage which is characteristic of BMW management. While there is some integration risk to the company's purchase of Rolls-Royce, the company has demonstrated an ability to maintain its strong financial profile despite the integration challenges posed by Rover. Nonetheless, should the integration become more difficult than anticipated and a downturn in the auto market occur, downward pressure on the rating could result.
BMW AG, headquartered in Munich, Germany, is a manufacturer of high performance automobiles and motorcycles.
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