Note: On April 04, 2017, the press release was corrected as follows: in the fourth sentence of the second paragraph of the Ratings Rationale section, “EBITA” was changed to “EBIT”; in the third sentence of the Liquidity paragraph of the Ratings Rationale section, the maturity dates were changed to April 2020 and March 2022. Revised release follows.
Note: On April 12, 2017, the press release was corrected as follows: The last sentence of the third paragraph of the Ratings Rationale section was changed to the following: “However, we believe that eventual fines resulting from these investigations could still be accommodated within FCA’s Ba3 rating, given that the possible fines in the US constitute a statutory maximum and that a European Commission consultation process between Italian and German authorities on the diesel emission issues in the light of the steps previously taken voluntarily by the company to modify its emission controls on the affected vehicles resulted in no further action being requested.” Revised release follows.
Frankfurt am Main, March 30, 2017 -- Moody's Investors Service ("Moody's") has today affirmed the
Ba3 corporate family rating (CFR) and the Ba3-PD probability of
default rating of Fiat Chrysler Automobiles N.V. (Fiat Chrysler,
FCA). The outlook on the ratings of Fiat Chrysler was changed to
positive from stable.
"Fiat Chrysler's outlook change to positive reflects the company's
improved operating performance in fiscal year 2016, its continued
efforts to delever its balance sheet as well as its recovering market
share in Europe since 2015," says Falk Frey, a Senior
Vice President and lead analyst for Fiat Chrysler.
A full list of affected entities and ratings can be found at the end of
this press release.
RATINGS RATIONALE
Today's action reflects significant improvements in FCA's
profitability during 2016, the company's continued reduction
in gross debt and, hence, improvements in its financial metrics
which positions it strongly in the Ba3 rating category. FCA increased
its EBITA margin to 4.2% from 2.4% in 2015
(as adjusted by Moody's), mainly as a result of efficiency
gains in purchasing and manufacturing as well as a more favourable product
mix. After the company's profitability slightly but continuously
decreased since 2012, it has now recorded profitability improvements
in all of its reported segments. This resulted in positive free
cash flow generation, reaching almost EUR1.8 billion (Moody's
adjusted) in 2016, which is, however, still relatively
low compared to the company's revenue which totalled EUR111 billion
in the same year. Coupled with the company's continued efforts
to reduce its gross debt, which resulted in a further reduction
in leverage (gross debt/EBITDA) to 3.3x from 5.3x in 2015,
and coupled with a very high cash balance of EUR17.4 billion,
Moody's views the group as strongly positioned in the Ba3 rating
category.
At the same time, Moody's cautions that the operational improvements
have been supported by strong market growth in Europe and the US.
The growth in the overall US market in recent years has been meaningfully
supported by a very high level of consumer debt financing. This
has now reached a concerning level with a high share of subprime lending
and structures that even provide financing that is above the market value
of cars. Given that the US is FCA's most important market
where it sold 47% of its total units in 2016 and generated by far
the majority of its profit (84% of the company's adjusted
EBIT in 2016 was generated in the NAFTA region), this makes the
performance of the company vulnerable to a potential downturn in the US.
FCA already saw a volume decline by 11% year-on-year
(ex-Maserati) in the first two months of 2017 in the US,
mainly due to the previously announced phase out of the Chrysler 200 and
Dodge Dart. However, this was mitigated by EU+EFTA unit
sales increasing by 12% in the same period. Moody's
positively highlights that FCA showed signs of a recovery in its market
share in Europe over the last two years, now reaching 6.5%
(EU28+EFTA), after having experienced continuous decline since
it reached a peak at 8.8% in 2009. The recent introduction
of two new Alfa Romeo models (Giulia and Stelvio), further improvement
in the penetration of the Jeep brand, and an ongoing expansion of
the Maserati brand should help FCA to improve turnover and profitability
in Europe in an otherwise flat car market.
During 2017, FCA aims to further reduce debt by repaying maturing
capital market debt with cash on hand which is supported by positive free
cash flow generation and improving EBITDA, further reducing leverage
towards around 2.3x to 2.6x. However, this
might be jeopardised if the ongoing investigations into the diesel emission
issues in the US and Europe result in material fines. 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, FCA could
theoretically face fines of up to $4.6 billion in the US
(does not include possible criminal fines and civil damages) according
to information from the EPA. In addition, in February 2017,
the French prosecutors have opened a similar case, increasing further
the legal uncertainties for the company. However, we believe that eventual fines resulting from these investigations could still be accommodated within FCA’s Ba3 rating, given that the possible fines in the US constitute a statutory maximum and that a European Commission consultation process between Italian and German authorities on the diesel emission issues in the light of the steps previously taken voluntarily by the company to modify its emission controls on the affected vehicles resulted in no further action being requested.
Rationale for the positive outlook
The positive outlook is based on our expectation of FCA sustaining its
improved operating margin and debt-protection ratios over the next
12 months despite possible fines following current legal investigations
into the company's diesel emission issues.
The positive outlook also assumes that FCA will be able to weather the
challenging landscape as a result of heavy investment requirements for
(1) alternative propulsion technologies; (2) autonomous driving;
(3) the shift of production capacities towards alternative fuel vehicles;
(4) connectivity; as well as (5) regulations relating to vehicle
safety, emissions and fuel economy.
What could change the rating Up
Upward pressure on FCA's rating could materialise if the company is able
to demonstrate sustainability in 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 its 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 maintain
achieved ratios on a sustainable basis, namely (1) a Moody's-adjusted
EBITA margin above 4%, (2) a positive free cash flow,
(3) a Moody's-adjusted EBITA/Interest Expense trending towards
2.0x and (4) a Moody's-adjusted (gross) debt/EBITDA below
3.5x.
What could change the rating Down
We could downgrade FCA's ratings if (1) the company were to lose significant
market share in its key markets; (2) there is evidence that its product
renewal program for its key brands were to stall; and (3) its operating
performance were to deteriorate with limited prospects for improvement
within a reasonable timeline as a result of, for example,
a weakening in market conditions in the US, the major source of
profits and cash flows for the company, which would more than offset
further improvements in other regions and at Maserati.
Quantitatively, downward pressure on FCA's rating would build
by (1) the company's Moody's-adjusted EBITA margin falling
below 2.5%, (2) Moody's-adjusted (gross) debt/EBITDA
increasing above 4.5x or (3) Moody's-adjusted EBITA/Interest
Expense falling below 1.5x.
Liquidity
FCA has reduced gross debt (as adjusted by Moody's) by EUR8.4
billion since January 2016 (including EUR1.7 billion related to
the prepayment of FCA US's senior secured term loan B in February 2017
and EUR850 million of matured senior unsecured notes issued under the
company's GMTN program) and we expect the company to continue reducing
debt by using some of its excess cash as well as its free cash flow generated.
As at 31 December 2016, FCA's liquidity profile was considered good,
underpinned by EUR17.4 billion in cash and marketable securities
as well as access to undrawn EUR6.2 billion committed revolving
credit facilities (RCFs). The RCFs have today been upsized by EUR1.25
billion and its maturities have been extended, with EUR3.1
billion maturing in April 2020 (with two 1-year extension options
available) and EUR3.1 billion in March 2022. These funding
sources should cover FCA's anticipated cash requirements over the next
12 months, which comprise principally capex, debt maturities,
cash for day-to-day needs and a modest amount of dividends
paid to non-controlling interests.
Structural Considerations
On the basis of the unified capital structure following the elimination
of the ring fencing at FCA US LLC in March 2016, we have formally
included FCA US LLC in our notching 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 B1, or one notch
below the Ba3 CFR, according to Moody's Loss Given Default Methodology,
and the ratings assigned to FCA US's term loan B are Baa3.
List of affected ratings:
Affirmations:
..Issuer: Fiat Chrysler Automobiles N.V.
....LT Corporate Family Rating, Affirmed
Ba3
....Probability of Default Rating, Affirmed
Ba3-PD
....Senior Unsecured Medium-Term Note
Program, Affirmed (P)B1
....Senior Unsecured Medium-Term Note
Program, Affirmed (P)NP
....Senior Unsecured Regular Bond/Debenture,
Affirmed B1
..Issuer: FCA US LLC
....Senior Secured Bank Credit Facility,
Affirmed Baa3
..Issuer: Fiat Chrysler Finance Canada Ltd
....Backed Senior Unsecured Medium-Term
Note Program, Affirmed (P)B1
..Issuer: Fiat Chrysler Finance Europe SA
....Backed Senior Unsecured Medium-Term
Note Program, Affirmed (P)B1
....Backed Senior Unsecured Medium-Term
Note Program, Affirmed (P)NP
....Backed Senior Unsecured Regular Bond/Debenture,
Affirmed B1
..Issuer: Fiat Chrysler Finance North America Inc.
....Backed Senior Unsecured Medium-Term
Note Program, Affirmed (P)B1
....Backed Senior Unsecured Medium-Term
Note Program, Affirmed (P)NP
....Backed Senior Unsecured Regular Bond/Debenture,
Affirmed B1
Outlook Actions:
..Issuer: Fiat Chrysler Automobiles N.V.
....Outlook, Changed To Positive From
Stable
..Issuer: FCA US LLC
....Outlook, Changed To Positive From
Stable
..Issuer: Fiat Chrysler Finance Canada Ltd
....Outlook, Changed To Positive From
Stable
..Issuer: Fiat Chrysler Finance Europe SA
....Outlook, Changed To Positive From
Stable
..Issuer: Fiat Chrysler Finance North America Inc.
....Outlook, Changed To Positive From
Stable
The principal methodology used in these ratings was Global Automobile
Manufacturer Industry published in June 2011. Please see the Rating
Methodologies page on www.moodys.com for a copy of this
methodology.
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
SUBSCRIBERS: 44 20 7772 5454
Matthias Hellstern
MD - Corporate Finance
Corporate Finance Group
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454
Releasing Office:
Moody's Deutschland GmbH
An der Welle 5
Frankfurt am Main 60322
Germany
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454
