Frankfurt am Main, November 04, 2019 -- Moody's Investors Service ("Moody's") has today
changed the outlook on the ratings of Fiat Chrysler Automobiles N.V.
(FCA) and Fiat Chrysler Finance Europe SA to positive from stable.
Concurrently, Moody's affirmed the Ba1 corporate family rating
(CFR) and the Ba1-PD probability of default rating (PDR) of FCA
and the Ba2 ratings on the senior unsecured instruments issued by FCA
and Fiat Chrysler Finance Europe SA.
"The positive outlook reflects the potential for a stronger credit
profile of the combined Fiat and PSA entity should the proposed merger
between FCA and PSA be successfully executed.", said
Falk Frey, a Senior Vice President and Moody's lead analyst
for FCA. "The merger would create a larger and more diversified
global auto manufacturer with substantial synergy and efficiency potential,
which will help to mitigate multiple challenges within the global automotive
manufacturing industry.", added Mr. Frey.
A full list of affected entities and ratings can be found at the end of
this press release.
RATINGS RATIONALE
RATIONALE FOR THE POSITIVE OUTLOOK
Moody's considers the rationale of the proposed merger as strong,
given (i) the significant scale effects compared to FCA's standalone
sales of EUR110 billion in 2018 (excluding Magneti Marelli), including
improved market shares globally and in the individual regions, (ii)
the additional regional and brand diversification, and (iii) expected
material synergies in the area of production cost, research and
development (R&D) and capital expenditures. The merger also
addresses FCA's perceived weakness in its electrification strategy,
with the transaction allowing it to participate in more comprehensive
and advanced solutions offered by PSA. Taking the Baa3 rating of
PSA and the abovementioned benefits of the merger into consideration,
its successful execution could result in a rating upgrade for FCA,
assuming no further deterioration of the global automotive industry environment
in 2020.
However, we believe that there are significant uncertainties in
relation to reaching a definitive merger agreement and that executing
the merger will be a lengthy and complex process in an increasingly challenging
global auto market. Hence, for any further positive rating
action, we would need to better understand the timing and financial
implications of the transaction as well as get comfortable that the combined
entity can sustain credit metrics commensurate with an investment grade
rating in during a period of potentially weaker market conditions.
Our standalone expectation for FCA includes continued improvement of its
financial metrics in the current fiscal year according to the company's
guidance thus achieving a Moody's adjusted EBITA margin level of around
6% and containing its Moody's adjusted gross leverage (debt/EBITDA)
below 2.0x.
On 31 October 2019, FCA announced that its Board of Directors has
unanimously agreed with the supervisory board of Peugeot S.A.
(PSA, Baa3 stable) to work towards a full combination of the company's
respective businesses by way of a 50/50 merger. Both boards have
mandated their respective teams to develop a binding memorandum of understanding
in the coming weeks. A realization of the merger plan would create
the world's fourth largest automotive original equipment manufacturer
(OEM) with approximately 8.7 million vehicles sold in 2018,
and combined revenues of nearly EUR170 billion. The merger plan,
which is subject to execution risks, includes planned synergies
of EUR3.7 billion annually, against one-time restructuring
cost of EUR2.8 billion, and the payment of special dividends
of EUR5.5 billion in cash and the shareholding in Comau to FCA's
shareholders. PSA plans to distribute its 46% stake in the
automotive parts supplier Faurecia (Ba1 stable) to its shareholders.
Environmental, social and governance risks have been considered
in FCA's ratings and outlook. The company is exposed to the
transition risks of the industry towards alternative fuel vehicles,
and autonomous driving technologies, which will weigh negatively
on the company's future cash flow generation. We note that FCA
has been cautious so far to invest aggressively into these areas compared
to most of its European peers. In addition, in order to improve
its competitive position, global visibility and enhance its model
range, FCA will continue to make significant investments in the
next few years for the renewal of its models across the brand portfolio.
The company is exposed to the sector specific social risks, including
strike risks of typically well organized workers unions and demographic
changes within its end markets, where customers could seek to buy
more environmental friendly vehicles and pay less attention to the brand
value of vehicles. FCA's governance risks are relatively
low, given the company's status as listed company with high
standards in terms of organzational structure and public disclosure.
Moody's also considers FCA's financial policy as conservative.
RATIONALE FOR RATING AFFIRMATION
The rating affirmation reflects FCA's standalone credit profile.
The Ba1 CFR is supported by (1) the company's significantly improved credit
metrics in recent years, driven by substantial deleveraging actions
and sustainably improved albeit still moderate operating profitability
(note: all 2018 and 2017 figures presented in the following exclude
Magneti Marelli); (2) its degree of geographic diversity, including
a large exposure to North America, and its market leading presence
in its domestic market Italy and in Brazil; (3) the now local production
of certain key Jeep models in China, India, Italy, Mexico
and Brazil, expanding Jeep's geographic coverage and improving FCA's
cost structure and (4) the recent successful new model launches in the
SUV and pickup truck segment leading to a more favorable product mix.
FCA's Ba1 rating remains constrained by (1) the highly competitive nature
of the automotive industry, especially in Europe, which weighs
on growth and pricing activity; (2) FCA's high reliance on the market
in North America which seems to have reached its peak and on the Jeep
and Ram brands; (3) still low profitability in Europe (-0.5%
EBIT margin as adjusted by company in Q3 2019) despite a solid growth
in car demand over the last 4 years; (4) transition risk of the industry
towards alternative fuel vehicles and autonomous driving technologies.
WHAT COULD CHANGE THE RATINGS UP
With respect to the merger, positive rating pressure could build
once we have more clarity on timing and financial implications of the
merger transaction as well as comfort that the combined entity can sustain
credit metrics commensurate with an investment grade rating during a period
of potentially weaker market conditions.
Qualitatively, upward pressure on FCAs rating could materialize
if the company is able to demonstrate a successful and sustainable improvement
in its competitive position outside the North America region in particular
Europe and China. Furthermore the company needs to implement and
successfully execute a profitable and resilient competitive position for
its Alfa Romeo and Maserati brands. An upgrade would also require
sustainability in FCA's current operating profitability and cash flow
generation, even if market conditions were to weaken in the US and
in Europe as well as its track record in successfully addressing tougher
emission standards without being a leader in supporting technologies.
Quantitatively, an upgrade could occur if FCA were able to achieve
(1) a Moody's-adjusted EBITA margin sustainably above 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 and (3) keeping
its leverage based on Moody's-adjusted (gross) debt/EBITDA sustainably
below 2.0x.
WHAT COULD CHANGE THE RATINGS DOWN
FCAs ratings might come under downward pressure should FCAs 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.
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 3.0x.
Outlook Actions:
..Issuer: Fiat Chrysler Automobiles N.V.
....Outlook, Changed To Positive From
Stable
..Issuer: Fiat Chrysler Finance Europe SA
....Outlook, Changed To Positive From
Stable
Affirmations:
..Issuer: Fiat Chrysler Automobiles N.V.
.... Corporate Family Rating, Affirmed
Ba1
.... Probability of Default Rating,
Affirmed Ba1-PD
....Senior Unsecured Shelf, Affirmed
(P)Ba2
....Other Short-Term, Affirmed
(P)NP
....Senior Unsecured Medium-Term Note
Program, Affirmed (P)Ba2
....Senior Unsecured Regular Bond/Debenture,
Affirmed Ba2
..Issuer: Fiat Chrysler Finance Europe SA
....Other Short-Term, Affirmed
(P)NP
....Senior Unsecured Medium-Term Note
Program, Affirmed (P)Ba2
....Senior Unsecured Regular Bond/Debenture,
Affirmed Ba2
PRINCIPAL METHODOLOGY
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.
CORPORATE PROFILE
Having its corporate seat in Amsterdam, the Netherlands, and
its principal executive offices in the United Kingdom, FCA is one
of the world's largest automotive manufacturers by unit sales.
Its portfolio of automotive brands includes Abarth, Alfa Romeo,
Chrysler, Dodge, Fiat, Fiat Professional, Jeep,
Lancia, Ram and Maserati. In 2018, FCA generated consolidated
net revenues of EUR110.4 billion and reported an adjusted EBIT
of EUR6.7 billion (both excluding Magneti Marelli).
REGULATORY DISCLOSURES
For ratings issued on a program, series, category/class of
debt or security this announcement provides certain regulatory disclosures
in relation to each rating of a subsequently issued bond or note of the
same series, category/class of debt, security 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
Anke Rindermann
Associate Managing Director
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
