New York, June 22, 2022 -- Moody's Investors Service ("Moody's") has completed a periodic review of the ratings -and other ratings that are associated with the same analytical units for the rated entity(entities) listed below.
The review was conducted through a portfolio review discussion held on 15 June 2022 in which Moody's reassessed the appropriateness of the ratings in the context of the relevant principal methodology(ies), recent developments, and a comparison of the financial and operating profile to similarly rated peers. A possible outcome from periodic reviews is a referral of a rating to a rating committee.
This publication does not announce a credit rating action and is not an indication of whether or not a credit rating action is likely in the near future. Credit ratings and outlook/review status cannot be changed in a portfolio review and hence are not impacted by this announcement.
Key Rating Considerations
The principal methodology used for these rated entities was Automobile Manufacturers published in May 2021. Please see the Rating Methodologies page on https://ratings.moodys.com for a copy of this methodology.
Key rating considerations on a forward-looking basis may include but are not limited to the following summarized below.
Automobile Manufacturers
Business Profile: The business profile of an automobile manufacturer is considered because it can influence the ability to generate operating cash flows and the stability and sustainability of those flows. Core aspects of an automaker's business profile include changes in its market share, its competitive position within each market, the breadth and strength of its product offering, and its capacity to adapt to consumer, political and regulatory trends. Scoring for this factor is based on Trend in Global Unit Share Over Three Years, Market Position and Product Breadth/Strength.
Profitability and efficiency: Profits matter because they are needed to maintain a competitive position, which includes making sufficient reinvestments in marketing, research, facilities, and human capital. The ability to sustain high profitability is generally a strong indicator of operating efficiency and of substantial competitive advantages, particularly if combined with evidence of stable or rising market share. The EBITA margin is one indicator of profitability.
Leverage and Coverage: Leverage and coverage measures are indicators of the financial flexibility and long-term viability of a company, including its ability to adapt to changes in the economic and business environments in the segments in which it operates. Automakers typically require a strong cash position to mitigate the volatility that can occur in their cash flows. Economic downturns as well as company-specific circumstances that consume cash, such as the potential for high product development costs, product defects or recalls, or capital calls from a captive finance subsidiary, make financial flexibility important. Among others, ratios such as Debt/ EBITDA, Cash plus Marketable Securities/ Debt, Free Cash Flow/ Debt, and EBITA/ Interest Expense are indicators of leverage and coverage.
Financial Policy: Management and board tolerance for financial risk is considered because it directly affects debt levels, credit quality, and the risk of adverse changes in financing and capital structure. Our assessment of financial policies includes the perceived tolerance of a company's governing board and management for financial risk and the future direction for the company's capital structure. Financial risk tolerance serves as a guidepost to investment and capital allocation. Liquidity management is also considered as an aspect of overall risk management and can provide insight into risk tolerance.
Other Factors: Other factors may include, but are not limited to, financial controls and the quality of financial reporting; corporate legal structure; the quality and experience of management; assessments of corporate governance as well as environmental and social considerations; exposure to uncertain licensing regimes and possible government interference in some countries. Regulatory, litigation, liquidity, technology, and reputational risk as well as changes to consumer and business spending patterns, competitor strategies and macroeconomic trends are also considered.
• Beijing Automotive Group Co., Ltd.
• Dongfeng Motor Group Company Limited
• Geely Automobile Holdings Limited
• Hyundai Motor Company
• Kia Corporation
• Tata Motors Limited
The principal methodology used for these rated entities was Automobile Manufacturers (Japanese) published in June 2021. Please see the Rating Methodologies page on https://ratings.moodys.com/japan/ratings-news for a copy of this methodology.
Key rating considerations on a forward-looking basis may include but are not limited to the following summarized below.
Automobile Manufacturers (Japanese)
Business Profile: The business profile of an automobile manufacturer is considered because it can influence the ability to generate operating cash flows and the stability and sustainability of those flows. Core aspects of an automaker's business profile include changes in its market share, its competitive position within each market, the breadth and strength of its product offering, and its capacity to adapt to consumer, political and regulatory trends. Scoring for this factor is based on Trend in Global Unit Share Over Three Years, Market Position and Product Breadth/Strength.
Profitability and efficiency: Profits matter because they are needed to maintain a competitive position, which includes making sufficient reinvestments in marketing, research, facilities, and human capital. The ability to sustain high profitability is generally a strong indicator of operating efficiency and of substantial competitive advantages, particularly if combined with evidence of stable or rising market share. The EBITA margin is one indicator of profitability.
Leverage and Coverage: Leverage and coverage measures are indicators of the financial flexibility and long-term viability of a company, including its ability to adapt to changes in the economic and business environments in the segments in which it operates. Automakers typically require a strong cash position to mitigate the volatility that can occur in their cash flows. Economic downturns as well as company-specific circumstances that consume cash, such as the potential for high product development costs, product defects or recalls, or capital calls from a captive finance subsidiary, make financial flexibility important. Among others, ratios such as Debt/ EBITDA, Cash plus Marketable Securities/ Debt, Free Cash Flow/ Debt, and EBITA/ Interest Expense are indicators of leverage and coverage.
Financial Policy: Management and board tolerance for financial risk is considered because it directly affects debt levels, credit quality, and the risk of adverse changes in financing and capital structure. Our assessment of financial policies includes the perceived tolerance of a company's governing board and management for financial risk and the future direction for the company's capital structure. Financial risk tolerance serves as a guidepost to investment and capital allocation. Liquidity management is also considered as an aspect of overall risk management and can provide insight into risk tolerance.
Other Factors: Other factors may include, but are not limited to, financial controls and the quality of financial reporting; corporate legal structure; the quality and experience of management; assessments of corporate governance as well as environmental and social considerations; exposure to uncertain licensing regimes and possible government interference in some countries. Regulatory, litigation, liquidity, technology, and reputational risk as well as changes to consumer and business spending patterns, competitor strategies and macroeconomic trends are also considered.
• Honda Motor Co., Ltd.
• Nissan Motor Co., Ltd.
• Toyota Motor Corporation
• Yamaha Motor Company Limited
The principal methodology used for these rated entities was Automotive Suppliers published in May 2021. Please see the Rating Methodologies page on https://ratings.moodys.com for a copy of this methodology.
Key rating considerations on a forward-looking basis may include but are not limited to the following summarized below.
Automotive Suppliers
Scale: Scale is considered because it is an indicator of a company's market strength and operating flexibility, as well as its resilience to shocks, such as sudden shifts in demand or rapid cost increases. Scale has a bearing on other considerations, such as geographic diversity and R&D capabilities. Scale is measured using total reported revenue.
Business Profile: The business profile of an automotive supplier is considered because it greatly influences its ability to generate sustainable earnings and operating cash flow. A core aspect of an auto supplier's business profile is its technological capability. Companies at the forefront of technological and product innovation and that have a record of successful R&D investment benefit from barriers to entry and are typically less vulnerable to competitive threats, including product substitution, than companies that are more focused on commodity-type products. Content per vehicle, which is the value of all products supplied for one specific vehicle, is also an indicator of the value of an auto supplier's products to automakers.
Profitability and Efficiency: Profitability is an indicator of an automotive supplier's ability to generate stable cash flow and maintain a competitive position. In addition, profit margins provide another indication of the value of an auto supplier's products to vehicle manufacturers. The ability to generate strong profit margins after R&D investment enables an auto supplier to make further investments in technology and broaden its leadership within the industry. The EBITA margin and expected Free Cash Flow Stability are indicators of profitability and efficiency.
Leverage and Coverage: Leverage and coverage measures provide important indications of financial flexibility and how much financial risk an automotive supplier is willing to undertake. Financial flexibility is critical to an auto supplier's ability to invest in R&D as well as to make strategic acquisitions both to acquire critical technology and expand vehicle programs to meet new platform launches. Among others, ratios such as Debt/ EBITDA, EBITA-/ Interest Expense, and Retained Cash Flow/ Net Debt are indicators of leverage and coverage.
Financial Policy: Financial policy encompasses management and board tolerance for financial risk and commitment to a strong credit profile. It is an important rating determinant, because it directly affects debt levels, credit quality, the future direction for the company and the risk of adverse changes in financing and capital structure. Financial risk tolerance serves as a guidepost to investment and capital allocation. Liquidity management is an important aspect of overall risk management and can provide insight into risk tolerance. Many auto suppliers have historically used acquisitions or have invested heavily in R&D to spur revenue growth, expand business lines, consolidate market positions, advance cost synergies, or seek access to new technology. The financing of such investments is often an important indicator for a company's financial policy.
Other Factors: Other factors may include, but are not limited to, financial controls and the quality of financial reporting; corporate legal structure; the quality and experience of management; assessments of corporate governance as well as environmental and social considerations; exposure to uncertain licensing regimes; and possible government interference in some countries. Regulatory, litigation, liquidity, technology, and reputational risk as well as changes to consumer and business spending patterns, competitor strategies and macroeconomic trends are also considered.
• AVIC Automotive Systems Holding Co., Ltd.
• Contemporary Amperex Technology Co., Ltd.
• Gajah Tunggal Tbk (P.T.)
• Hankook Tire & Technology Co., Ltd.
• Hyundai Mobis Co., Ltd.
• Johnson Electric Holdings Limited
• Nexteer Automotive Group Limited
• Samvardhana Motherson International Limited
• Yanfeng International Auto Tech Co., Ltd.
The principal methodology used for these rated entities was Automotive Suppliers (Japanese) published in May 2021. Please see the Rating Methodologies page on https://ratings.moodys.com/japan/ratings-news for a copy of this methodology.
Key rating considerations on a forward-looking basis may include but are not limited to the following summarized below.
Automotive Suppliers (Japanese)
Scale: Scale is considered because it is an indicator of a company's market strength and operating flexibility, as well as its resilience to shocks, such as sudden shifts in demand or rapid cost increases. Scale has a bearing on other considerations, such as geographic diversity and R&D capabilities. Scale is measured using total reported revenue.
Business Profile: The business profile of an automotive supplier is considered because it greatly influences its ability to generate sustainable earnings and operating cash flow. A core aspect of an auto supplier's business profile is its technological capability. Companies at the forefront of technological and product innovation and that have a record of successful R&D investment benefit from barriers to entry and are typically less vulnerable to competitive threats, including product substitution, than companies that are more focused on commodity-type products. Content per vehicle, which is the value of all products supplied for one specific vehicle, is also an indicator of the value of an auto supplier's products to automakers.
Profitability and Efficiency: Profitability is an indicator of an automotive supplier's ability to generate stable cash flow and maintain a competitive position. In addition, profit margins provide another indication of the value of an auto supplier's products to vehicle manufacturers. The ability to generate strong profit margins after R&D investment enables an auto supplier to make further investments in technology and broaden its leadership within the industry. The EBITA margin and expected Free Cash Flow Stability are indicators of profitability and efficiency.
Leverage and Coverage: Leverage and coverage measures provide important indications of financial flexibility and how much financial risk an automotive supplier is willing to undertake. Financial flexibility is critical to an auto supplier's ability to invest in R&D as well as to make strategic acquisitions both to acquire critical technology and expand vehicle programs to meet new platform launches. Among others, ratios such as Debt/ EBITDA, EBITA-/ Interest Expense, and Retained Cash Flow/ Net Debt are indicators of leverage and coverage.
Financial Policy: Financial policy encompasses management and board tolerance for financial risk and commitment to a strong credit profile. It is an important rating determinant, because it directly affects debt levels, credit quality, the future direction for the company and the risk of adverse changes in financing and capital structure. Financial risk tolerance serves as a guidepost to investment and capital allocation. Liquidity management is an important aspect of overall risk management and can provide insight into risk tolerance. Many auto suppliers have historically used acquisitions or have invested heavily in R&D to spur revenue growth, expand business lines, consolidate market positions, advance cost synergies, or seek access to new technology. The financing of such investments is often an important indicator for a company's financial policy.
Other Factors: Other factors may include, but are not limited to, financial controls and the quality of financial reporting; corporate legal structure; the quality and experience of management; assessments of corporate governance as well as environmental and social considerations; exposure to uncertain licensing regimes; and possible government interference in some countries. Regulatory, litigation, liquidity, technology, and reputational risk as well as changes to consumer and business spending patterns, competitor strategies and macroeconomic trends are also considered.
• Bridgestone Corporation
• Denso Corporation
The principal methodology used for these rated entities was Captive Finance Subsidiaries of Nonfinancial Corporations (Japanese) published in August 2019. Please see the Rating Methodologies page on https://ratings.moodys.com/japan/ratings-news for a copy of this methodology.
Key rating considerations on a forward-looking basis may include but are not limited to the following summarized below.
Captive Finance Subsidiaries of Nonfinancial Corporations (Japanese)
Analysis of the interrelationship between the ratings of industrial companies and their captive finance subsidiaries typically involves three principal assessments:
Assessing stand-alone credit quality of the parent and captive: Industrial company financial analysis is very different from finance company analysis, and simply analyzing a parent and its captive on a consolidated basis can give very misleading impressions of credit strength. For instance, the combined balance sheet of an industrial company and its captive finance subsidiary might seem highly leveraged in comparison to a peer industrial company that does not have a captive finance subsidiary. But upon splitting the businesses apart, it might become apparent that the greater level of debt associated with the finance business is appropriate given the nature of its assets, and that the industrial business is only moderately leveraged. It is therefore important to make an assessment of the difference in the stand-alone credit quality between the parent company and the captive; that is to assess the credit quality of the finance company on its own excluding any parental support, and then to separately assess the credit quality of the industrial operations after deconsolidating the finance subsidiary.
Assessing the drag on the parent rating posed by the potential need to support the captive: For industrial companies that produce high ticket capital equipment such as automobiles, construction equipment and airplanes, the ownership of a captive finance subsidiary is often a critical component of the sales and distribution process. Captive finance subsidiaries assist manufacturers by providing floor plan financing for dealers and provide support for sales to end users through retail sales financing and lease financing. The operation of a captive finance subsidiary brings important risks in that the captive subsidiary requires significant access to capital to fund its portfolio. The inability of a captive finance subsidiary to maintain a competitive cost of capital can render it unable to effectively compete with other lenders. Failing to provide support for a captive that is viewed by the capital markets as a key component of the parent's operations can have important reputational risks for the parent and could adversely affect its ability to access the capital markets. The potential drag on the parent company's rating is assessed using two methods the Capital Call Assessment and the Potential Liquidity Call Assessment.
Assessing the lift of the captive finance subsidiary's credit quality provided by parental support: It is critical to understand the business relationship and the contractual relationship between a parent and captive in assessing the credit quality of a captive finance subsidiary. Because captive finance subsidiaries are critical elements of the marketing and sales strategies of industrial companies, the credit quality of the captive can be directly influenced by the ability and willingness of the parent to provide support. We consider contractual support in the form of guarantees or support agreements that might exist between a parent and captive. However, in the absence of a strong guarantee, support agreements are typically less important than our assessment of how the business relationship might motivate the parent to support or not support the captive. The potential lift on the captive finance subsidiary's credit quality is assessed using two methods: The Assessment of Guarantees and the Qualitative Assessment of Support.
• Honda Finance Europe Plc
• Toyota Financial Services (UK) PLC
• Toyota Financial Services Corporation
• Yamaha Motor Company Limited
The principal methodology used for these rated entities was Equipment and Transportation Rental published in February 2022. Please see the Rating Methodologies page on https://ratings.moodys.com for a copy of this methodology.
Key rating considerations on a forward-looking basis may include but are not limited to the following summarized below.
Equipment and Transportation Rental
Scale: We consider scale because it is an indicator of the overall depth of a company's business and its success in attracting a variety of customers, as well as its resilience to shocks s, such as sudden shifts in demand or rapid cost increases Scale not only takes into account size, but also reflects customer and geographic diversification as well as equipment investment. Large rental companies, particularly those with contiguous operations, can share equipment and maintenance staff across a large area. This ability improves equipment utilization rates and allows companies to maintain their fleet more efficiently, as well as improve service to customers by providing greater equipment availability. Scale also often allows large rental companies enhanced purchasing power when buying equipment from Original Equipment Manufacturers, which can aid in their overall profitability. Scale is measured using total reported revenue.
Business Profile: We consider the business profile as relevant in assessing credit quality for companies in the equipment and transportation rental industry. Entry into this industry requires significant capital investment, the need for which can extend through the cycle. companies seek to efficiently manage their fleet with the goal of maximizing returns on the equipment over the long term. Companies with relatively stronger market positions generally have geographically diverse operations, a broader customer base and a range of well-maintained or newer equipment. Companies with these characteristics can also benefit from comparatively higher equipment utilization and lower maintenance costs. Such companies are in stronger positions to fund necessary investments, and often have a lower cost of capital. In our qualitative assessment, we consider the expected volatility of a company's results and the strength of its market position. In addition, we consider a company's fleet management and the level of its equipment utilization. Cost-effectiveness is also assessed.
Profitability: Profitability provides a measure of the company's ability to generate sustainable cash flow and maintain a c competitive position. Pretax Income as a percentage of Sales is an indicator of profitability and it provides an indication of the overall efficiency of a company's cost structure which is an important consideration in a capital intensive industry.
Leverage and Coverage: Leverage and coverage measures provide indications of a company's financial capacity and long-term viability... These metrics are indicators of a company's ability to sustain its competitive position, access capital to invest in its business and service debt through difference phases of the economic cycles. Among others, ratios such as Debt/EBITDA, EBITDA/ Interest Expense, and Funds from Operations/ Debt are indicators of leverage and coverage.
Financial Policy: Management and board tolerance for financial risk is considered as it directly affects debt levels, credit quality, and the risk of adverse changes in financing and capital structure. Our assessment of financial policies includes the perceived tolerance of a company's governing board and management for financial risk and the future direction for the company's capital structure. Considerations include a company's public commitments in this area, its track record for adhering to commitments, and our views on the ability of the company to achieve its targets.
Other Factors: Other factors may include, but are not limited to, our assessment of the quality of management, corporate governance, financial controls, liquidity management, event risk and seasonality.
• CAR Inc.
The principal methodology used for these rated entities was Finance Companies Methodology (Japanese) published in November 2019. Please see the Rating Methodologies page on https://ratings.moodys.com/japan/ratings-news for a copy of this methodology.
Key rating considerations on a forward-looking basis may include but are not limited to the following summarized below.
Finance Companies Methodology (Japanese)
Profitability: a finance company's long-term profitability is a core element of its ability to generate capital and support creditor obligations, and core or recurring profitability is the first line of defense to absorb credit-related losses and losses stemming from market, operational and business risk.
Capital Adequacy and Leverage: capital adequacy is a key element in the assessment of a finance company's ability to absorb asset volatility, including write-downs, or the impact of a systemic crisis that causes dislocation in financial markets. Ample capital enhances financial flexibility, which may support access to capital markets in times of stress. Finance companies with lower leverage have more strategic alternatives; they are better able to fund growth and acquisitions or to divest themselves of non-core businesses and absorb losses on discontinued operations.
Asset quality: asset quality is a primary driver of earnings and capital formation for some finance companies, including lenders and business development companies. These types of finance company often have a concentration in a single asset class or operate in niche sectors that are intrinsically higher risk (e.g., subprime) and that can be vulnerable to changing investor sentiment irrespective of expected asset quality performance. However, asset quality considerations are immaterial for those finance companies that are service providers and similar companies that have predominantly cash flow-based businesses; and accordingly, asset quality considerations typically are not a core component of the analysis for these.
Cash flow and liquidity: the ability of a finance company to access liquidity on a recurring basis is an essential component of its operating model. Most finance companies rely heavily on confidence-sensitive wholesale funding which increases liquidity risk in times of stress.
Operating environment: a finance company's operating environment can over time have as much, if not more, of a bearing on its long-term viability as the intrinsic strength of their own operations. Operating environment considerations include the relevant economic, judicial, regulatory, institutional, and general operating conditions that may affect finance companies' creditworthiness.
Other qualitative considerations: important other qualitative considerations that can affect a finance company's creditworthiness include the extent of its business diversification, concentration and franchise positioning, the extent of the opacity and complexity of its activities, its corporate behavior and risk management, and its liquidity management.
Support and structural analysis: a finance company's ratings may be positively affected by the capacity and willingness of its affiliates and public bodies to provide it with support.
Sovereign or parent constraint: a finance company's ratings may be negatively affected by a constraint related to the relatively lower creditworthiness of its sovereign or parent.
Instrument-level rating considerations: individual instrument ratings also factor in notching considerations based on the seniority and collateral of the instruments.
• Honda Finance Europe Plc
• Toyota Financial Services (UK) PLC
• Toyota Financial Services Corporation
The principal methodology used for these rated entities was Rating Transactions Based on the Credit Substitution Approach: Letter of Credit-backed, Insured and Guaranteed Debts published in May 2017. Please see the Rating Methodologies page on https://ratings.moodys.com for a copy of this methodology.
Key rating considerations on a forward-looking basis may include but are not limited to the following summarized below.
Rating Transactions Based on the Credit Substitution Approach: Letter of Credit-backed, Insured and Guaranteed Debts
Third-party credit support: The goal of third-party credit support is to substitute the credit risk of the support provider for the credit risk of the issuer. For credit substitution to be achieved, investors must be insulated from the risk of payment default by the underlying obligor. Generally, the long-term ratings on credit-supported transactions track the long-term rating assigned to the credit provider.
Additional Considerations: Credit substitution requires more than just the presence of a credit support instrument from a third-party credit provider. The transaction documentation provides clear instructions to ensure that payments under the credit support facility are made when due and that there are no impediments to the timely payment of debt service. The key elements evaluated include: mitigation of bankruptcy risk of issuer; sufficiency of credit support; structural provisions which provide for the timely payment of debt service; bondholders to be paid in full if credit support expiration or termination will result in a change.
• TML Holdings Pte Limited
This announcement applies only to Rated Entities with EU rated, UK rated, EU endorsed and UK endorsed ratings. Rated Entities, with Non EU rated, non UK rated, non EU endorsed and non UK endorsed ratings may be referenced herein to the extent necessary, if they are part of the same analytical unit.
Please see the Issuer page on https://ratings.moodys.com for each of the ratings covered, most updated credit rating action, rating history, and Credit Rating action Press Release including the rating rationale and factors that could lead to a rating upgrade or downgrade.
Please see the Issuer page on https://ratings.moodys.com/japan/ratings-news for each of the ratings covered, most updated credit rating action, rating history, and Credit Rating action Press Release including the rating rationale and factors that could lead to a rating upgrade or downgrade.
This publication does not announce a credit rating action.
For any credit ratings referenced in this publication, please see the issuer/deal page on https://ratings.moodys.com
for the most updated credit rating action information and rating history.
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