Frankfurt am Main, March 11, 2022 -- Moody's Investors Service ("Moody's") has today changed the outlook on the ratings of Stellantis N.V. (Stellantis, or the company) to positive from stable. Concurrently, Moody's has affirmed the Baa3 long-term issuer and senior unsecured instrument ratings and the (P)P-3 other short-term rating of Stellantis.
A full list of ratings is shown at the end of this press release.
"The outlook change reflects Stellantis' progress in terms of margins and leverage in the first year following the merger between Fiat Chrysler Automobiles N.V. (FCA) and Peugeot S.A. (PSA) in early January 2021", said Matthias Heck, a Moody's Vice President - Senior Credit Officer and Lead Analyst for Stellantis. "A rating upgrade to Baa2 is likely, if the company is able to sustain mid- to high single-digit operating profit margins and maintains leverage sustainable below 2.5x, notwithstanding the short-term challenges in terms of increasing commodity prices and risks for consumer confidence and affordability" added Mr. Heck.
RATINGS RATIONALE
The positive outlook on Stellantis' Baa3 rating is driven by the company's strong operating and financial performance in 2021 and the track record management has built over the last years in lifting the group's performance. We acknowledge that profit margins and leverage metrics have improved to levels where Moody's would consider a rating upgrade if those levels were sustained. However, the positive outlook balances significant short-term challenges for the global automotive industry (including substantially higher energy and commodity prices, potential for disruption in supplies, and related risks for consumer confidence and affordability, especially in the mass market) with Stellantis prospects of strong margins (including the realization of further merger synergies) and moderate leverage.
A rating upgrade is likely, if Stellantis maintains Moody's adjusted EBITA margins in the mid- to high single digits in percentage terms (9.4% in 2021, 6.3% in 2020), and maintains its debt/EBITDA (Moody's adjusted) below 2.5x (2.5x as of December 2021, 3.4x as of December 2020).
On 25 February 2022, Stellantis published its first consolidated audited financials, following the merger between FCA and PSA in early 2021. In the first year of its existence, where the company had to integrate both merger partners, the company increased its net revenues by 14% to EUR152 billion and achieved a company-adjusted operating income of EUR18.0 billion (11.8% margin), an increase of 95% versus 2020 (all numbers pro forma for the merger). The company also generated EUR6.1 billion of industrial free cash flows (company-defined, before EUR3.3 billion proposed dividends) for FY 2021 Pro Forma. The strong operating performance was facilitated by favorable price and mix effects at a time where consumer demand was strong and global automotive production was depressed due to the shortage of semiconductor supplies. Moreover, Stellantis benefited from the realization of EUR3.2 billion of net cash synergies (including cost benefits and capex savings), which represent a material part of the company's EUR5 billion annual synergy target. For 2022, Stellantis expects to achieve double-digit adjusted operating income margins.
On 28 January 2022, Stellantis announced, the early repayment of its EUR6.3 billion credit facility with Intesa Sanpaolo, which was initially structured to support Italy's automotive sector after the outbreak of the pandemic in 2020. The repayment will lead to a corresponding reduction of Moody's adjusted debt, which stood at EUR44 billion at the end of December 2021 (including adjustments for pensions and factoring). The repayment will reduce Stellantis debt/EBITDA (Moody's adjusted) by approximately 0.35x (based on 2021 EBITDA).
On 01 March 2022, Stellantis announced its long-term strategic plan until 2030. The plan includes sustained double-digit company-adjusted operating income margins through the decade, including achieving 100% of its EUR5 billion merger synergy target by the end of 2024, whilst doubling net revenues to EUR300 billion by 2030. The company targets global battery electric vehicle (BEV) sales of 5 million units in 2030, reaching 100% of passenger car BEV sales mix in Europe and 50% passenger cars and light-duty trucks in the US in 2030. The company also targets a 25%-30% dividend payout ratio through 2025 and to repurchase up to 5% of its outstanding common shares.
RATIONALE FOR THE RATING AFFIRMATION
The Baa3 long-term issuer rating is supported by (1) the company's strong and further improved credit metrics following the merger between FCA and PSA; (2) the group's scale, ranking among the world's largest automotive manufacturers; (3) its degree of geographic diversity, including a large and balanced exposure to its two main markets of North America and Europe; (4) strong margin improvements due to the realization of sizeable merger synergies and a track record of price and cost discipline further supported by a flexible cost structure; (5) the group's strong liquidity profile.
The Baa3 long-term issuer rating is constrained by (1) the highly competitive nature of the automotive industry, especially in Europe, which weighs on growth and pricing activity; (2) the group's high reliance on the mature North American and European market, with very little exposure to growth markets, especially China, leading to a higher cyclicality compared to other Auto OEMs with a broader geographic portfolio; (3) challenges to integrate FCA and PSA and realize synergies, which will be a complex and time-consuming process, notwithstanding the progress made in 2021; (4) substantial recurring structuring expenses resulting from the merger between FCA and PSA as well as the continued integration of Opel/Vauxhall and PCD; (5) transition risk of the industry towards alternative fuel vehicles and autonomous driving technologies.
LIQUIDITY
Stellantis' liquidity profile is excellent. At the end of 2021, Stellantis had EUR49.6 billion of cash and cash equivalents. In addition, Stellantis signed a new EUR12 billion revolving credit facility (RCF) in July 2021, comprising one EUR6.0 billion tranche with a 3 year tenor, and another EUR6.0 billion tranche with a 5 year tenor. Both tranches have two extension options of one year each. The RCF has no financial covenants and no MAC clause.
These funding sources, totaling to approximately EUR62 billion will comfortably cover Stellantis' anticipated cash requirements for day-to-day needs (estimated at 3% of sales or approximately EUR4 billion), short-term debt maturities (approximately EUR9.9 billion in 2022, including the EUR6.3 billion facility that was repaid in January 2022) and proposed dividend payments (EUR3.3 billion) over the next 12 months. We also expect that Stellantis will generate positive free cash flows, with cash from operations exceeding capex (Moody's estimates around EUR12 billion).
FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS
Qualitatively, upward pressure on the Baa3 long-term issuer rating could materialize if the company was able to maintain its strong market positions in North America and Europe and enhance its geographical diversification beyond both regions. An upgrade would also require a continued roll-out of electrified models, especially at the former FCA brands, in the context of tighter emission regulation within Stellantis' core markets and stable to slightly growing market share.
Quantitatively, an upgrade would require Stellantis to sustain (i) Moody's-adjusted EBITA margin (after restructuring cost) sustainably in the mid- to high single-digits in percentage terms, and (ii) Moody's-adjusted (gross) debt/EBITDA sustainably below 2.5x, and (iii) consistently positive and robust free cash flow above EUR1.0 billion annually.
The issuer rating could be downgraded if (i) Moody's adjusted EBITA margin (after restructuring) remained below 4%, or Moody's-adjusted debt/EBITDA remained above 3.5x, or (ii) free cash flow remained negative, or (iii) its liquidity profile were to weaken. Moreover, a sustained decline in Stellantis' market share would put pressure on the rating.
LIST OF AFFECTED RATINGS:
..Issuer: Fiat Chrysler Finance Europe SENC
Affirmations:
....BACKED Other Short Term, Affirmed (P)P-3
....BACKED Senior Unsecured Medium-Term Note Program, Affirmed (P)Baa3
....BACKED Senior Unsecured Regular Bond/Debenture, Affirmed Baa3
Outlook Actions:
....Outlook, Changed To Positive From Stable
..Issuer: GIE PSA Tresorerie
Affirmations:
....BACKED Senior Unsecured Regular Bond/Debenture, Affirmed Baa3
....Commercial Paper, Affirmed P-3
Outlook Actions:
....Outlook, Changed To Positive From Stable
..Issuer: Stellantis Finance US Inc.
Affirmations:
....BACKED Senior Unsecured Regular Bond/Debenture, Affirmed Baa3
Outlook Actions:
....Outlook, Changed To Positive From Stable
..Issuer: Stellantis N.V.
Affirmations:
.... LT Issuer Rating, Affirmed Baa3
....Senior Unsecured Bank Credit Facility, Affirmed Baa3
....Other Short Term, Affirmed (P)P-3
....Senior Unsecured Medium-Term Note Program, Affirmed (P)Baa3
....BACKED Senior Unsecured Regular Bond/Debenture, Affirmed Baa3
....Senior Unsecured Regular Bond/Debenture, Affirmed Baa3
Outlook Actions:
....Outlook, Changed To Positive From Stable
PRINCIPAL METHODOLOGY
The principal methodology used in these ratings was Automobile Manufacturers published in May 2021 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1275604. Alternatively, please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.
COMPANY PROFILE
Stellantis has been created by the merger of FCA and PSA. Having its corporate seat in Amsterdam, the Netherlands, Stellantis ranks among the world's largest automotive manufacturers by volume. Its portfolio of automotive brands includes Abarth, Alfa Romeo, Chrysler, Citroen, Dodge, DS Automobiles, Fiat, Jeep, Lancia, Maserati, Opel, Peugeot, Ram and Vauxhall. In 2021, Stellantis had combined shipments (including JV's) of 6.1 million units, generated net revenues of EUR152 billion and achieved company-adjusted operating income of EUR18.0 billion (all figures on a pro forma basis).
Stellantis also provides financing to dealers and end-customers through its finance arms (1) Banque PSA Finance in joint ventures with Santander Consumer Finance, and with BNP Paribas Personal Finance, (2) FCA Bank S.p.A., a joint venture with Credit Agricole S.A., and (3) Stellantis Financial Services US Corp.
REGULATORY DISCLOSURES
For further specification of Moody's key rating assumptions and sensitivity analysis, see the sections Methodology Assumptions and Sensitivity to Assumptions in the disclosure form. Moody's Rating Symbols and Definitions can be found at: https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_79004.
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.
The ratings have been disclosed to the rated entity or its designated agent(s) and issued with no amendment resulting from that disclosure.
These ratings are solicited. Please refer to Moody's Policy for Designating and Assigning Unsolicited Credit Ratings available on its website www.moodys.com.
Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.
Moody's general principles for assessing environmental, social and governance (ESG) risks in our credit analysis can be found at http://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1288235.
The Global Scale Credit Rating on this Credit Rating Announcement was issued by one of Moody's affiliates outside the UK and is endorsed by Moody's Investors Service Limited, One Canada Square, Canary Wharf, London E14 5FA under the law applicable to credit rating agencies in the UK. Further information on the UK endorsement status and on the Moody's office that issued the credit rating is available on www.moodys.com.
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.
Matthias Heck, CFA
VP - Senior Credit Officer
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
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