Frankfurt am Main, September 24, 2018 -- Moody's Investors Service, ("Moody's") has
today affirmed Fiat Chrysler Automobiles N.V.'s (FCA)
Ba2 corporate family rating (CFR), the Ba2-PD probability
of default rating (PDR) and at the same time changed the outlook on all
ratings to positive from stable. Concurrently, Moody's has
also affirmed the Ba3 rating of FCA's senior unsecured notes and the Baa2
rating of the senior secured term loan B issued by FCA US LLC, a
subsidiary of FCA.
"FCA's outlook change to positive reflects the continued improvements
in its credit metrics since our last upgrade in March this year,"
said Falk Frey, a Senior Vice President and lead analyst for FCA.
"In case these metrics can be sustained even in periods of weaker
demand and rising headwinds from higher raw material prices, rising
interest rates and tariff changes this could result in an upgrade of FCA's
ratings within the next 12-18," Frey added.
A full list of affected entities and ratings can be found at the end of
this press release.
RATINGS RATIONALE
In the first half of 2018 FCA's worldwide combined shipments (including
shipments from unconsolidated joint ventures) increased by 5.7%
to 2.5 million vehicles from 2.4 million. Growth
has mainly been driven from shipments in NAFTA (+11.6%)
and LATAM (+21.0%), while combined shipments
in APAC have decreased (-25.3%) mainly due to the
anticipated import duty reduction in China effective July 2018 (which
caused delays in both retail and wholesale demand for a large part of
the second quarter), and remained relatively flat in EMEA (+0.8%).
Overall this resulted in net revenues of EUR56 billion (+1%)
compared to H1 2017. Although the reported adjusted EBIT of EUR3.3
billion declined by 4% compared to the first six months in the
previous year, FCA reported a positive industrial free cash flow
in the first half 2018 of EUR2.5 billion (compared to a slightly
negative industrial free cash flow in H1 2017) which resulted in a reported
net industrial cash position of EUR0.5 billion for the first time.
These reported numbers resulted in an EBITA margin improvement to 5.9%
(as adjusted by Moody's) for the LTM June 30, 2018 period (5.5%
fiscal year 2017), free cash flow generation (as adjusted by Moody's)
of EUR3.7 billion (2017: EUR1.1 billion), a
reduction in gross debt to EUR22.6 billion (as adjusted by Moody's,
EUR24.4 billion in 2017 and a further reduced leverage (Moody's
adjusted debt/EBITDA) of 2.1x compared with 2.4x in 2017.
For 2018 Moody's anticipates FCA's operating performance and
cash flow generation to continue to improve driven by successful new product
launches in higher margin SUV and pick-up segments like the new
Jeep Cherokee and all-new Jeep Wrangler as well as the all-new
Ram 1500 pickup, despite the slight decline in US light vehicles
demand that Moody's anticipates in 2018 (-2%) as well
as the continued ramp-up of the all-new Jeep Compass following
completion of its worldwide roll-out in 2017.
Moody's notes that FCA's intention to operate a captive finance
subsidiary fully owned in the US would be strategically positive for FCA
and put FCA in a comparable position with its major competitors in North
America. Concerning funding and cash needs to establish such an
operation either through acquisition of an established captive finance
company or its assets or by starting with a greenfield operation,
we assume an amount of no more than EUR3.5 billion over the next
3 years to be spent by FCA. This includes and assumes conservative
capitalization of the entity relative the its asset risks.
FCA's rating is constrained by a significant dependency on operating
performance from its business in the US, with a strong reliance
on performance of the Jeep and Ram models. Given the strong market
dynamics there, FCA's numbers are reflective of a cyclical
industry that has reached a peak, even though we do not expect a
severe decline for the current year. However, a weaker market
environment in the US could have adverse effects on FCA's performance
and, hence, leverage.
In addition, FCA together with all other automotive OEMs is exposed
to the transition risks of the industry towards alternative fuel vehicles,
and autonomous driving technologies, which will weigh negatively
on future cash flow generation.
FCA is subject to emissions investigations in Europe and most notably
in the US. In January 2017, the U.S. Environmental
Protection Agency ("EPA") accused FCA of violating the US
Clean Air Act, alleging that FCA US LLC (FCA US) failed to disclose
certain emissions control strategies. While discussions on possible
penalties seem premature, the US Clean Air Act provides for theoretical
fines of up to USD4.6 billion (does not include possible fines
imposed by other authorities or civil damages). Moody's believes
that a mid-single digit billion Euro amount of one-time
expenses could be compensated within the Ba2 rating.
LIQUIDITY
As of 30 June 2018, FCA's liquidity profile is considered good,
underpinned by EUR13.3 billion in reported cash and marketable
securities for the industrial activities, as well as access to undrawn
EUR7.6 billion committed revolving credit facilities (RCFs).
The main Group syndicated RCF was extended and upsized by EUR1.25
billion in March 2017 and its maturities were further extended in March
2018, with EUR3.1 billion maturing in April 2021 (with two
1-year extension options available) and EUR3.1 billion in
March 2023. These funding sources should cover FCA's anticipated
cash requirements over the next 12 months, which comprise principally
capex, debt maturities, and cash for day-to-day
needs.
Positive Outlook
The positive outlook is based on our expectation that FCA will continue
to improve its financial metrics further in the current fiscal year thus
achieving our trigger levels for a possible upgrade to Ba1.
The positive outlook also assumes that FCA's financial policy to
remain conservative with no excessive dividend payouts, a more moderate
gross leverage than in the past, a solid liquidity profile and some
operational resilience in case of a weakening of FCA's markets
What Could Change the Ratings UP
Qualitatively, upward pressure on FCA's rating could materialize
if the company can sustain its current operating profitability and cash
flow generation, even if market conditions were to weaken in the
US and in Europe. An upgrade of FCA's rating would also hinge
on the company's ability to resolve the current legal investigations
in the US and Europe surrounding the diesel emissions issues, without
a material impact on the company's credit metrics, and without
a serious impact on its reputation, as evidenced by a loss of market
share.
Quantitatively, an upgrade could occur if FCA were able to achieve
(1) a Moody's-adjusted EBITA margin around 6%,
(2) a consistently positive and robust free cash flow without compromising
on its capital expenditures and R&D expenses needed to achieve emission
targets, to manage the transition to alternative fuel vehicles and
new drivetrain technologies as well as autonomous vehicles, (3)
a reduction in leverage based on Moody's-adjusted (gross)
debt/EBITDA sustainably below 2.0x.
What Could Change the Ratings DOWN
FCA's ratings might come under downward pressure should FCA's
operating performance and cash flow generation come under significant
pressure as a result of market share declines or if market conditions
were to weaken in the US and in Europe or material fines would hurt the
company's brand image.
A downgrade could occur in case these events would result in the following
credit metrics for a sustained period of time: (1) a Moody's-adjusted
EBITA margin falling below 4%, (2) a sizable negative free
cash flow, or (3) a Moody's-adjusted (gross) debt/EBITDA
exceeding 3.5x
STRUCTURAL CONSIDERATIONS
We have considered the senior unsecured notes issued by FCA and its treasury
companies as structurally subordinated to a significant portion of financial
and non-financial debt (including the remaining USD1.0 billion
senior secured term loan B at FCA US), located at the level of FCA's
operating subsidiaries largely consisting of trade payables. Consequently,
the ratings of FCA's outstanding senior unsecured bonds is Ba3,
or one notch below the Ba2 CFR, according to Moody's Loss Given
Default Methodology, and the rating assigned to FCA US's secured
term loan B is Baa2.
The principal methodology used in these ratings was Automobile Manufacturer
Industry published in June 2017. Please see the Rating Methodologies
page on www.moodys.com for a copy of this methodology.
Having its corporate seat in Amsterdam, the Netherlands, and
the place of effective management in the United Kingdom, FCA is
one of the world's largest automotive manufacturers by unit sales.
Its portfolio of brands includes Abarth, Alfa Romeo, Chrysler,
Dodge, Fiat, Fiat Professional, Jeep, Lancia,
Ram, Maserati and Mopar, the parts and service brand.
In 2017 FCA generated consolidated net revenues of EUR111 billion and
reported an adjusted EBIT of EUR7.1 billion.
Affirmations:
..Issuer: FCA US LLC
....Senior Secured Bank Credit Facility,
Affirmed Baa2
..Issuer: Fiat Chrysler Automobiles N.V.
.... Probability of Default Rating,
Affirmed Ba2-PD
.... Corporate Family Rating, Affirmed
Ba2
....Senior Unsecured Shelf, Affirmed
(P)Ba3
....Other Short-Term, Affirmed
(P)NP
....Senior Unsecured Medium-Term Note
Program, Affirmed (P)Ba3
....Senior Unsecured, Affirmed Ba3
..Issuer: Fiat Chrysler Finance Europe SA
....Backed Other Short-Term,
Affirmed (P)NP
....Backed Senior Unsecured Medium-Term
Note Program, Affirmed (P)Ba3
....Backed Senior Unsecured, Affirmed
Ba3
Outlook Actions:
..Issuer: FCA US LLC
....Outlook, Changed To Positive From
Stable
..Issuer: Fiat Chrysler Automobiles N.V.
....Outlook, Changed To Positive From
Stable
..Issuer: Fiat Chrysler Finance Europe SA
....Outlook, Changed To Positive From
Stable
REGULATORY DISCLOSURES
For ratings issued on a program, series or category/class of debt,
this announcement provides certain regulatory disclosures in relation
to each rating of a subsequently issued bond or note of the same series
or category/class of debt or pursuant to a program for which the ratings
are derived exclusively from existing ratings in accordance with Moody's
rating practices. For ratings issued on a support provider,
this announcement provides certain regulatory disclosures in relation
to the credit rating action on the support provider and in relation to
each particular credit rating action for securities that derive their
credit ratings from the support provider's credit rating.
For provisional ratings, this announcement provides certain regulatory
disclosures in relation to the provisional rating assigned, and
in relation to a definitive rating that may be assigned subsequent to
the final issuance of the debt, in each case where the transaction
structure and terms have not changed prior to the assignment of the definitive
rating in a manner that would have affected the rating. For further
information please see the ratings tab on the issuer/entity page for the
respective issuer on www.moodys.com.
For any affected securities or rated entities receiving direct credit
support from the primary entity(ies) of this credit rating action,
and whose ratings may change as a result of this credit rating action,
the associated regulatory disclosures will be those of the guarantor entity.
Exceptions to this approach exist for the following disclosures,
if applicable to jurisdiction: Ancillary Services, Disclosure
to rated entity, Disclosure from rated entity.
Regulatory disclosures contained in this press release apply to the credit
rating and, if applicable, the related rating outlook or rating
review.
Please see www.moodys.com for any updates on changes to
the lead rating analyst and to the Moody's legal entity that has issued
the rating.
Please see the ratings tab on the issuer/entity page on www.moodys.com
for additional regulatory disclosures for each credit rating.
Falk Frey
Senior Vice President
Corporate Finance Group
Moody's Deutschland GmbH
An der Welle 5
Frankfurt am Main 60322
Germany
JOURNALISTS: 44 20 7772 5456
Client Service: 44 20 7772 5454
Matthias Hellstern
MD - Corporate Finance
Corporate Finance Group
JOURNALISTS: 44 20 7772 5456
Client Service: 44 20 7772 5454
Releasing Office:
Moody's Deutschland GmbH
An der Welle 5
Frankfurt am Main 60322
Germany
JOURNALISTS: 44 20 7772 5456
Client Service: 44 20 7772 5454
