NOTE: On March 24, 2016, the press release was corrected as follows: In the REGULATORY DISCLOSURES section, added as the fourth and fifth paragraphs disclosure language regarding the person approving the rating and releasing office. Revised release follows.
London, 13 November 2015 -- Moody's Investors Service has today changed to positive from stable the
outlook on Fiat Chrysler Automobiles N.V.'s (FCA or
the company) B1 corporate family rating (CFR). Concurrently,
Moody's has affirmed FCA's B1 CFR, B1-PD probability
of default rating (PDR), the B2 long-term senior unsecured
rating assigned to the debt issued by FCA and its rated subsidiaries,
Fiat Chrysler Finance Europe SA, Fiat Chrysler Finance North America
Inc., as well as the (P)B2/(P)NP rating assigned to FCA,
Fiat Chrysler Finance Europe SA, Fiat Chrysler Finance North America
Inc. and (P)B2 rating assigned to Fiat Chrysler Finance Canada
Ltd. In addition, Moody's has affirmed the Ba1 rating
assigned to FCA US LLC's first-lien secured term loans and
secured revolving credit facility and the B1 rating assigned to its second-lien
secured notes due 2021.
"The change in outlook to positive reflects the continuation of
the positive earnings trends reported by FCA in two of its core regions,
NAFTA and EMEA, supported by favourable growth in demand for passenger
cars and the success of some of its key brands, especially Jeep",
says Yasmina Serghini, a Moody's Senior Credit Officer and
lead analyst for FCA. "We also expect that FCA will further
simplify its debt structure and will reduce its indebtedness in the course
of 2016, which will drive an improvement in its financial profile",
adds Mrs Serghini.
RATINGS RATIONALE
Today's change of outlook to positive reflects Moody's expectation
that FCA will continue to benefit from favourable sales trends in the
NAFTA and EMEA regions in the next 12 months, which, combined
with the company's planned model launches and measures to enhance
its pricing power and capacity utilization, will support its profitability.
In particular, Moody's believes that FCA will be able to sustain
a stronger EBIT margin (as adjusted by FCA) in the NAFTA region in the
next 12 months (between 5.5%-6% in 2015,
up from 4.1% in 2014) fuelled by the success of its Jeep
brand, the launch of new RAM and Chrysler brands models as well
as ongoing initiatives to enhance pricing power.
Moody's also expects that the recovery in demand for passenger cars
in Western Europe will support volume growth for FCA, such that
the rating agency expects some further profit growth in 2016 from an expected
low base in 2015. In this context, Moody's also acknowledges
the success of the Jeep brand in Europe as evidenced by the increase in
the brand market share by 30 basis points to 0.6% (according
to ACEA, for the period January to September 2015).
Moreover, Moody's expects that FCA will take additional steps
in the coming months to simplify its debt structure. Principally,
FCA will formally eliminate the ring fencing at the FCA US LLC (FCA US)
level and use the resulting enhanced cash balance to pay down debt,
which, in turn, will improve the company's gross leverage
metric. In addition to the cash at FCA US, FCA's cash
position will also benefit from proceeds of approximately EUR2.5
billion (before set-off of intercompany balances) from its the
spin-off of Ferrari in January 2016. By end-2016,
Moody's anticipates that FCA's Moody's-adjusted
(gross) debt/EBITDA ratio is likely to fall to 4.0x from 5.4x
at end-September 2015.
However, Moody's cautions that the high level of competition
in the European market will continue to constrain pricing and that the
benefits from FCA's initiatives to leverage its European industrial
base to produce its global brand vehicles will only gradually materialise.
Moreover, there is still uncertainty regarding the success of FCA's
strategy to revive its Alfa Romeo brand, which requires high investments.
The first of a series of new model launches is planned early next year
and will help gauge the appetite for new Alfa models in the face of highly
competitive near-premium and premium passenger car markets.
More generally, FCA's ongoing strategic plan is calling for
high investments, expected to peak in 2016, which will weigh
on free cash flow. In Moody's view, FCA's free
cash flow is likely to remain negative in 2016-17.
FCA also faces tougher market conditions in both Latin America and in
China, compared to when it first presented its 2014-18 strategic
plan. This has severely pressured the company's profitability
in these regions, and that of its luxury brand Maserati, since
the start of 2015. Furthermore, whilst Moody's forecasts
a rebound in growth in demand for passenger cars in China in 2016,
the rating agency cautions that (1) FCA still has a limited portion of
its Chinese sales produced locally, which weakens its competitiveness,
though this will gradually improve as its joint venture with a local partner
gains traction; and (2) recessionary macroeconomic conditions in
Brazil and less favourable financing conditions will severely constrain
volume growth in the country and for FCA in the next 12 to 18 months.
FCA's ratings are constrained by (1) the company's degree of concentration
in Europe, with Italy representing approximately half of FCA's European
car registrations; (2) a highly competitive environment in Europe,
which constrains pricing activity; (3) FCA's ongoing capacity utilization
optimisation in Europe, in particular in Italy; (4) weaker
profitability in Latin America, though FCA has outperformed its
direct competitors there, driven by declining demand, intense
competition, increasing capacities, price pressure and adverse
exchange rates effects against the euro; and (5) an expected reduced
contribution of FCA's Luxury Brands division following the spin-off
of Ferrari in January 2016 and weakening operating performance at Maserati,
although the launch of the Maserati Levante SUV in 2016 should help mitigate
this.
More positively, FCA's ratings also take into account (1) improving
profitability in NAFTA on the back of favourable demand trends and the
company's initiatives to increase volumes and its pricing power
in the region; (2) a recovery in demand for passenger cars in Western
Europe, which will support improved earnings in the next 12 months;
(3) a market leading presence in Italy, with a passenger car market
share of approximately 28%; (4) FCA's leading market position
in Brazil where the rating agency expects some profit improvement in the
next 12 months, after a steep deterioration in recent years,
helped by its new and more efficient plant (which started production in
the first half of 2015) and model launches; and (5) expectations
that FCA will take additional steps in the coming months to establish
free access to the cash and cash flows of its subsidiary FCA US and to
reduce its indebtedness, which will result in a better financial
profile.
STRUCTURAL CONSIDERATIONS
The senior unsecured notes issued by FCA and FCA's treasury companies
are structurally subordinated to a significant portion of financial and
non-financial debt located at the level of FCA's operating
subsidiaries, largely trade payables. Consequently,
the ratings of FCA's outstanding senior unsecured bonds are B2,
or one notch below the B1 CFR, according to Moody's Loss Given Default
Methodology.
Moody's will formally include FCA US in its notching considerations
when FCA eliminates the aforementioned ring fencing. At this time,
the rating agency's assessment will focus on the amount of non-financial
and financial debt that the company will ultimately retain within its
operating subsidiaries including the level of secured debt at FCA US,
as well as a significant amount of trade payables which we consider to
rank ahead of senior unsecured debt at the holding company level.
This might have the effect that notching will remain, even if secured
debt will have been repaid.
RATIONALE FOR A POSITIVE OUTLOOK
The outlook is positive. It factors in Moody's expectation
of an improvement in FCA's financial profile in 2016 and some improvement
in its operating margins in NAFTA, the company's largest market.
Moody's also anticipates a gradual increase in FCA's profitability
in Europe led by a recovery in demand and the continued success of its
Jeep brand, amidst sustained high demand for SUV vehicles.
WHAT COULD CHANGE THE RATING UP/DOWN
Upward pressure on FCA's rating could materialise if the company successfully
executes its 2014-18 plan, which would lead to improved operational
performance with a positive free cash flow exceeding EUR1.0 billion
that would be applied to debt reduction and a Moody's-adjusted
EBITA margin sustainably above 4%. An upgrade of FCA's rating
would also require that the company maintains a financial policy that
balances both the interests of shareholders and bondholders.
Moody's 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 programme for its key brands stalls; and
(3) its operating performance deteriorates with limited prospect of improvement
within a reasonable timeline as a result of, for example,
prolonged weakness in Latin America, a major source of profits and
cash flows for the company, which would more than offset further
improvements in other regions and at Maserati.
Credit metrics that could support a rating downgrade include a Moody's-adjusted
EBITA margin below 2% and a Moody's-adjusted (gross) debt/EBITDA
above 6.0x, for a prolonged period of time.
PRINCIPAL METHODOLOGY
The principal methodology used in these ratings was Global Automobile
Manufacturer Industry published in June 2011. Please see the Credit
Policy page on www.moodys.com for a copy of this methodology.
Fiat Chrysler Automobiles N.V. has its corporate seat in
Amsterdam, the Netherlands, with principal executive office
in the United Kingdom. FCA owns 100% of FCA US LLC (previously
Chrysler Group LLC) and is one of the largest automotive manufacturers
by unit sales. FCA common shares are listed on the New York Stock
Exchange and on the Mercato Telematico Azionario (MTA) in Italy.
List of affected ratings
Affirmations:
..Issuer: Fiat Chrysler Automobiles N.V.
.... Corporate Family Rating, Affirmed
B1
.... Probability of Default Rating,
Affirmed B1-PD
....Senior Unsecured Medium-Term Note
Program, Affirmed (P)B2
....Senior Unsecured Medium-Term Note
Program, Affirmed (P)NP
....Senior Unsecured Regular Bond/Debenture,
Affirmed B2
..Issuer: FCA US LLC
....Senior Secured Bank Credit Facility,
Affirmed Ba1
....Senior Secured Regular Bond/Debenture,
Affirmed B1
..Issuer: Fiat Chrysler Finance Canada Ltd
....BACKED Senior Unsecured Medium-Term
Note Program, Affirmed (P)B2
..Issuer: Fiat Chrysler Finance Europe SA
....BACKED Senior Unsecured Medium-Term
Note Program, Affirmed (P)B2
....BACKED Senior Unsecured Medium-Term
Note Program, Affirmed (P)NP
....BACKED Senior Unsecured Regular Bond/Debenture,
Affirmed B2
..Issuer: Fiat Chrysler Finance North America Inc.
....BACKED Senior Unsecured Medium-Term
Note Program, Affirmed (P)B2
....BACKED Senior Unsecured Medium-Term
Note Program, Affirmed (P)NP
....BACKED Senior Unsecured Regular Bond/Debenture,
Affirmed B2
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
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 rating action on the support provider and in relation to each particular
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 rating action, and
whose ratings may change as a result of this 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.
The person who approved Fiat Chrysler Automobiles N.V., Fiat Chrysler Finance Canada Ltd, Fiat Chrysler Finance Europe SA and Fiat Chrysler Finance North America Inc. credit ratings is Matthias Hellstern, MD - Corporate Finance, Corporate Finance Group, Journalists 44 20 7772 5456, Subscribers 44 20 7772 5454. The person who approved FCA US LLC credit ratings is Robert Jankowitz, MD - Corporate Finance, Corporate Finance Group, Journalists 44 20 7772 5456, Subscribers 44 20 7772 5454.
The relevant office for each credit rating is identified in “Debt/deal box” on the Ratings tab in the Debt/Deal List section of each issuer/entity page of the Website.
The below contact information is provided for information purposes only.
Please see the ratings tab of the issuer page at www.moodys.com,
for each of the ratings covered, Moody's disclosures on the
lead analyst and the Moody's legal entity that has issued the ratings.
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.
Yasmina Serghini-Douvin
VP - Senior Credit Officer
Corporate Finance Group
Moody's France SAS
96 Boulevard Haussmann
Paris 75008
France
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 Investors Service Ltd.
One Canada Square
Canary Wharf
London E14 5FA
United Kingdom
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454
Moody's changes outlook on FCA to positive; affirms B1 rating
