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Global Credit Research - 05 Jan 2011
First time issuer rating
Frankfurt am Main, January 05, 2011 -- Moody's Investors Service ("Moody's") has assigned
a Ba1 Corporate Family Rating (CFR), a Ba1 Probability of Default
Rating (PDR) and a Not Prime short term rating to the newly created Fiat
Industrial S.p.A. (FI), following the completion
of the demerger, with a stable outlook.
Effective since January 1st 2011 the former Fiat S.p.A.
has separated its automotive and non-automotive operations by a
partial and proportional demerger of the Capital Goods activities (Trucks,
Agricultural and Construction equipment) from Fiat S.p.A.
The demerged company will be called Fiat Industrial and will own CNH,
Iveco and FPT Industrial & Marine activities. The auto businesses,
Fiat Group Automobiles (FGA), Maserati, and Ferrari (85%
ownership), will remain in Fiat S.p.A. ("New
Fiat" or "the company"), along with the Components
business, FPT Passenger & Commercial Vehicles business and some
other assets including the Chrysler stake. The shares of Fiat Industrial
S.p.A. have been distributed to existing shareholders
and are listed at the Italian stock exchange since 3 January 2011.
Following the demerger the industrial activities of FI are anticipated
to carry a reported net debt of EUR2.0-2.4 billion
and a liquidity position of approx. EUR3.0 billion.
The Ba1 rating takes into account (i) the size of the demerged operations
(ii) the group's regional diversification of revenues with approx.
53% of sales generated in Europe, 21% in North America,
12% in South America and 12% in the rest of the world;
(iii) CNH's increasingly competitive position in the global agricultural
equipment (AG) market as the second leading producer behind Deere,
and the company's much less strong position in the construction equipment
(CE) sector; (iv) Iveco's solid market position in light commercial
vehicles up to 3.5 tons in Western Europe where it ranks No 2 brand
with 16% market share as well as its strong niche position in special
purpose trucks (e.g. firefighter) as well as the challenge
to expand and strengthen its position in the truck markets outside Europe
e.g. strengthen its positioning in Latin America and to
leverage on its Chinese truck joint-venture for exports into developing
markets and the need to improve CNH's product positioning especially
in CE to close the competitive gaps in operating performance.
Furthermore the Ba1 ratings anticipate a significant improvement in FI's
2009 pro-forma financial metrics currently not in line with the
Ba1 rating level.
Moody's notes that FI was incorporated July 21, 2010 in Torino.
Therefore the publicly available financial information is principally
included in the "Information Document" prepared in accordance
with Consob regulatory requirements published December 15th 2010 providing
pro forma financial statements for 2009 and the first three quarters of
The stable outlook is based on Moody's expectation of (i) an EBIT
margin improvement to above 3.5% in fiscal year 2010 with
further progress to around 4.0% in the current fiscal year
2011 and a level of 7.0% to be achieved thereafter;
(ii) interest cover to recover to approx. 2.5x in 2011 from
well above 1.0x expected for 2010; (iii) furthermore a significant
reduction in leverage exemplified by Debt/EBITDA below 4.0x by
2011 down from an anticipated below 5.0x in 2010 as well as (iv)
the ability to generate positive free cash flows for each of the years
2011 and 2012 as well as for the last fiscal year.
Downward rating pressure could arise in case of management's inability
to sustain the recent improvements in the group's operating and
credit metrics. This would be evidenced by the group's failure
to reduce debt/EBITDA below 4.0 times in 2011 and to 3.0
times in 2012 as well as EBIT margins below 4% in 2011 and below
6% in 2012. In addition, any deterioration in the
adequacy of the group's liquidity profile and continued negative
free cash flow generation could have a negative impact on the rating.
An upgrade of the ratings could be envisaged longer-term in case
of a substantial improvement in operating performance and cash flow generation
evidenced by (i) EBITA margins sustainably above 7%, (ii)
interest cover (EBIT/interest expense) sustainably exceeding 4.0x
as well as (iii) a permanent reduction in leverage ratio (Debt/EBITDA)
to well below 3.0x and (iv) a solid liquidity profile where sources
of cash cover the uses in Moody's stress scenario for a rolling
period of the next 12-15 months.
Effective at the time of the demerger a new EUR2.0 billion syndicated
revolving credit facility (RCF) has been put in place with a maturity
of 3 years. Furthermore, a new term-loan of EUR2.2
billion as "bridge-financing" with a tenor of 1 year
with another 1-year term out option at the exclusive option of
the borrower has also been arranged.
For fiscal year-end 2010, the group anticipates its industrial
operations to have access to liquidity sources of approximately EUR3.0
billion in cash and credit facilities.
These sources should provide adequate coverage for the major liquidity
requirements that could arise during the next twelve months. These
requirements include short-term bank- and other debt maturities
as well as capital expenditures and potential dividend payments.
Moody's rating does not assume that Fiat Industrial will be required
to support Fiat S.p.A.'s outstanding liabilities
at the time of the demerger as a consequence of the existing joint liability
pursuant of the Article 2506-quarter of the Civil Code.
Should Fiat S.p.A.'s credit profile significantly
weaken in the future, this could exercise a drag on FI's ratings.
The principal methodology used in this rating was Global Heavy Manufacturing
Rating Methodology published in November, 2009.
Headquartered in Torino, Italy, Fiat Industrial S.p.A.
comprises of the demerged activities of Fiat S.p.A.,
CNH, Iveco, the Industrial & Marine activities of FPT
(FPT I&M), and Fiat Industrial Finance. On a pro forma
basis Fiat Industrial generated revenues of approx. EUR18 billion
in fiscal year 2009.
Information sources used to prepare the credit rating are the following:
parties involved in the ratings, public information, and confidential
and proprietary Moody's Investors Service information.
Moody's Investors Service considers the quality of information available
on the issuer or obligation satisfactory for the purposes of assigning
a credit rating.
The rating has been disclosed to the rated entity or its designated agents
and issued with no amendment resulting from that disclosure.
Moody's Investors Service may have provided Ancillary or Other Permissible
Service(s) to the rated entity or its related third parties within the
three years preceding the Credit Rating Action. Please see the
ratings disclosure page www.moodys.com/disclosures on our
website for further information.
Moody's adopts all necessary measures so that the information it uses
in assigning a credit rating is of sufficient quality and from sources
Moody's considers to be reliable including, when appropriate,
independent third-party sources. However, Moody's
is not an auditor and cannot in every instance independently verify or
validate information received in the rating process.
Please see ratings tab on the issuer/entity page on Moodys.com
for the last rating action and the rating history.
The date on which some Credit Ratings were first released goes back to
a time before Moody's Investors Service's Credit Ratings were fully digitized
and accurate data may not be available. Consequently, Moody's
Investors Service provides a date that it believes is the most reliable
and accurate based on the information that is available to it.
Please see the ratings disclosure page on our website www.moodys.com
for further information.
Please see the Credit Policy page on Moodys.com for the methodologies
used in determining ratings, further information on the meaning
of each rating category and the definition of default and recovery.
Frankfurt am Main
Senior Vice President
Corporate Finance Group
Moody's Deutschland GmbH
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454
Eric de Bodard
MD - Corporate Finance
Corporate Finance Group
Moody's France SAS
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454
Moody's Deutschland GmbH
Moody's assigns Ba1 rating to Fiat Industrial S.p.A. with a stable outlook
An der Welle 5
Frankfurt am Main 60322
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454
No Related Data.
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