Approximately EUR9.1 Billion of Debt Affected
Frankfurt am Main, February 09, 2011 -- Moody's Investors Service has today confirmed the Ba1 Corporate
Family Ratings (CFR) of Fiat S.p.A. ("Fiat")
and its rated subsidiaries Fiat Finance & Trade and Fiat Finance North
America, as well as assigned a Ba1 Probability of Default Rating
(PDR). The short-term ratings are Not-Prime and the
outlook is negative. This rating action concludes the review for
possible downgrade, initiated on July 21, 2010, following
the finalisation of the de-merger of Fiat Industrial.
RATINGS RATIONALE
The confirmation of the rating was prompted by Fiat's better-than-anticipated
operating performance, cash flow generation and lower level of net
debt in 2010. On a pro-forma basis, Fiat post demerger
reported a trading profit margin in the industrial business of 2.9%
compared with 2.1% in 2009 and a positive free cash flow
(FCF) of around EUR0.4 billion as a result of continued tight control
of capital expenditures (capex) and working capital. The group's
pro-forma reported net industrial debt improved to EUR0.5
billion at 31 December 2010 compared with EUR1.6 billion at 30
September 2010.
Fiat's ratings benefit from its leading market positions in Brazil
(with an approximate 25% market share), as the company's
major source of profits and cash flows in the past years. Fiat
Group also benefits from a dominant domestic Italian market presence (with
an approximate 30% market share). The group generates approximately
two thirds of its revenues in these two countries and is therefore especially
vulnerable to a drop-off in demand in either one of these regions.
This very limited geographic diversification is a key weakness to its
current rating.
The rating also reflects (i) Fiat's business risk, with a
pure focus on the highly cyclical automotive industry including a 25%
stake in Chrysler Group and the activities of Magneti Marelli (automotive
components) and Teksid (supplier of engine blocks) as well as of Comau
(robotics for the auto industry) and Fiat Powertrain Automotive (mostly
an internal supplier of engines); and (ii) Moody's view of
an ageing product portfolio in Europe resulting from the absence of recent
new volume model launches. This has led to an overall relatively
infrequent model renewal rate compared with its direct peers, thus
constraining the group's competitive position. This was also
reflected in last year's market share losses in Europe and in Fiat's
important home market Italy.
Moody's anticipates that Fiat will be able to contain further market
share losses within the next two years before regaining market shares
in Europe, based on an attractive renewed model range.
The Ba1 rating also takes into consideration a substantial increase in
capital expenditures in the current year and beyond, compared with
a reduced level in 2010, in order to develop and launch attractive
new volume models to the market. Moody's anticipates that
this will accelerate from 2012 onwards.
In addition, the rating considers the risks and opportunities associated
with its participation in Chrysler. In the medium term, a
successful integration of Chrysler could lead to a better allocation and
utilisation of production capacity and synergies resulting from the sharing
of its distribution network. However, this involves material
execution risk. Any sizeable cash investment from Fiat into Chrysler
for raising its stake beyond 35% would increase the negative pressure
on the rating.
The negative outlook reflects (i) Fiat's challenge to sustain its
current market shares in Europe, including market shares in its
important domestic Italian market given a lack of major new volume model
launches in the current year; and (ii) Moody's moderate base-case
scenario assumptions on light-vehicle demand in Western Europe
(down by 1% in 2011 compared with 2010), with Fiat's
domestic Italian market anticipated to decline by 0.5% and
market demand in Brazil to be at the same level in 2011 as in 2010,
which could undermine the group's targeted revenue and profitability
improvements. In January 2011, Italian registrations fell
21% year-on-year and Fiat's sales declined
by 28%. New car registrations in Brazil increased by 14%
in January year-on-year, but declined by 37%
compared with December. In addition, the negative outlook
considers our expectation that rising capital expenditures will likely
result in some negative FCFs for Fiat in the next two years.
Furthermore, contrary to Moody's prior assumptions that Fiat
will not invest any cash into Chrysler short to medium term, the
likelihood is high that Fiat will exercise its call option to raise its
stake in Chrysler to above 50%, resulting in a significant
event risk to the current ratings, which is also reflected in the
negative outlook. Fiat holds a primary call option named "Incremental
Equity Call Option" to acquire up to a 16% of Chrysler's
equity, exercisable January 2013 to June 2016. However,
Fiat may exercise the incremental equity call option if the two outstanding
loans at Chrysler -- granted by UST and the Government of
Canada for approximately US$5.8 billion --
are repaid. Recent statements from Fiat and Chrysler's CEO
indicate that this event could occur in the near term. The consideration
that Fiat has to pay for a 16% stake will be determined on the
basis of an EBITDA multiple that will not exceed Fiat's EBITDA multiple
at the time of the exercise of the option, or in case of Chrysler
being a listed company on the basis of Chrysler's market value.
The ratings could be downgraded if the group is unable to (i) sustain
the recent improvements in its profitability, cash flow metrics
and leverage resulting in Debt/EBITDA of 4.0x or higher in 2011;
(ii) sustain a sizeable cash absorption; and (iii) preserve a healthy
liquidity profile with a balanced debt maturity structure.
Also, any cash investment from Fiat into Chrysler, e.g.,
to exercise the incremental call option, could trigger a rating
downgrade.
A rating upgrade within the next 12-18 months is currently unlikely,
but the outlook could be stabilised if Fiat demonstrates an ability to
sustain the positive trajectory in its profitability and credit metrics,
which should be evidenced by (i) EBITA margins trending towards 3.5%
in 2011; and (ii) Debt/EBITDA below 3.5x.
Fiat's sources of liquidity for the next 12-month period
primarily include cash & marketable securities on balance sheet of
EUR13.2 billion as well as potential cash flow generation from
operations. Moody's notes that all committed credit lines of EUR1.0
billion with a residual tenor exceeding 12 months were fully drawn at
fiscal year-end 2010. These sources should be sufficient
to cover Fiat's cash needs over the same period consisting of short-term
debt maturities of EUR5.6 billion, capital expenditures in
the range of EUR4.0-4.5 billion, working capital
funding, day-to-day needs, as well as expected
dividend payments of EUR150 million.
Assignments:
..Issuer: Fiat Finance & Trade Ltd.
....Senior Unsecured Regular Bond/Debenture,
Assigned
Reinstatements:
..Issuer: Fiat Finance & Trade Ltd.
....Multiple Seniority Medium-Term
Note Program, Reinstated to LGD4, 55%
....Senior Unsecured Regular Bond/Debenture,
Reinstated to LGD4, 55%
....Senior Unsecured Regular Bond/Debenture,
Reinstated to LGD4, 55%
....Senior Unsecured Regular Bond/Debenture,
Reinstated to LGD4, 55%
....Senior Unsecured Regular Bond/Debenture,
Reinstated to LGD4, 55%
....Senior Unsecured Regular Bond/Debenture,
Reinstated to LGD4, 55%
..Issuer: Fiat Finance Canada Ltd.
....Multiple Seniority Medium-Term
Note Program, Reinstated to LGD4, 55%
..Issuer: Fiat Finance North America Inc.
....Multiple Seniority Medium-Term
Note Program, Reinstated to LGD4, 55%
....Senior Unsecured Regular Bond/Debenture,
Reinstated to LGD4, 55%
..Issuer: Fiat S.p.A.
.... Probability of Default Rating,
Reinstated to Ba1
Outlook Actions:
..Issuer: Fiat Finance & Trade Ltd.
....Outlook, Changed To Negative From
Rating Under Review
..Issuer: Fiat Finance Canada Ltd.
....Outlook, Changed To Negative From
Rating Under Review
..Issuer: Fiat Finance North America Inc.
....Outlook, Changed To Negative From
Rating Under Review
..Issuer: Fiat S.p.A.
....Outlook, Changed To Negative From
Rating Under Review
Confirmations:
..Issuer: Fiat Finance & Trade Ltd.
....Multiple Seniority Medium-Term
Note Program, Confirmed at (P)NP, (P)Ba1
....Multiple Seniority Medium-Term
Note Program, Confirmed at (P)NP, (P)Ba1
....Senior Unsecured Regular Bond/Debenture,
Confirmed at Ba1
....Senior Unsecured Regular Bond/Debenture,
Confirmed at Ba1
....Senior Unsecured Regular Bond/Debenture,
Confirmed at Ba1
....Senior Unsecured Regular Bond/Debenture,
Confirmed at Ba1
....Senior Unsecured Regular Bond/Debenture,
Confirmed at Ba1
....Senior Unsecured Regular Bond/Debenture,
Confirmed at Ba1
..Issuer: Fiat Finance Canada Ltd.
....Multiple Seniority Medium-Term
Note Program, Confirmed at (P)Ba1
..Issuer: Fiat Finance North America Inc.
....Multiple Seniority Medium-Term
Note Program, Confirmed at (P)NP, (P)Ba1
....Multiple Seniority Medium-Term
Note Program, Confirmed at (P)NP, (P)Ba1
....Senior Unsecured Regular Bond/Debenture,
Confirmed at Ba1
..Issuer: Fiat S.p.A.
.... Corporate Family Rating, Confirmed
at Ba1
Moody's most recent rating action on Fiat was a review for possible
downgrade of its Ba1 CFR on July 21, 2010 triggered by the company's
plan to spin-off its Industrial activities Case New Holland (CNH),
Iveco and the industrial and marine business of Fiat Powertrain (FPT).
The principal methodologies used in this rating were Global Automobile
Manufacture Industry published in December 2007, and Loss Given
Default for Speculative-Grade Non-Financial Companies in
the U.S., Canada and EMEA published in June 2009.
Headquartered in Torino, Italy, Fiat S.p.A.
("Fiat", rated Ba1/negative outlook) is one of Italy's
leading industrial groups and one of Europe's largest automotive
manufacturers by unit sales. On 01 January 2011, the group
completed the demerger of its capital goods activities, mainly Iveco
and CNH (Ba3/stable), into a separate company, called Fiat
Industrial. On a pro-forma basis, the new Fiat S.p.A.
generated consolidated revenues of EUR35.9 billion and reported
a trading profit of EUR 1.1 billion in 2010.
REGULATORY DISCLOSURES
Information sources used to prepare the credit rating are the following:
parties involved in the ratings, public information, and confidential
and proprietary Moody's Investors Service information.
Moody's Investors Service considers the quality of information available
on the issuer or obligation satisfactory for the purposes of maintaining
a credit rating.
The rating has been disclosed to the rated entity or its designated agents
and issued with no amendment resulting from that disclosure.
Moody's Investors Service may have provided Ancillary or Other Permissible
Service(s) to the rated entity or its related third parties within the
three years preceding the Credit Rating Action. Please see the
ratings disclosure page www.moodys.com/disclosures on our
website for further information.
Moody's adopts all necessary measures so that the information it uses
in assigning a credit rating is of sufficient quality and from sources
Moody's considers to be reliable including, when appropriate,
independent third-party sources. However, Moody's
is not an auditor and cannot in every instance independently verify or
validate information received in the rating process.
Please see ratings tab on the issuer/entity page on Moodys.com
for the last rating action and the rating history.
The date on which some Credit Ratings were first released goes back to
a time before Moody's Investors Service's Credit Ratings were fully digitized
and accurate data may not be available. Consequently, Moody's
Investors Service provides a date that it believes is the most reliable
and accurate based on the information that is available to it.
Please see the ratings disclosure page on our website www.moodys.com
for further information.
Please see the Credit Policy page on Moodys.com for the methodologies
used in determining ratings, further information on the meaning
of each rating category and the definition of default and recovery.
Frankfurt am Main
Falk Frey
Senior Vice President
Corporate Finance Group
Moody's Deutschland GmbH
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454
Paris
Eric de Bodard
MD - Corporate Finance
Corporate Finance Group
Moody's France SAS
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454
Moody's Deutschland GmbH
An der Welle 5
Frankfurt am Main 60322
Germany
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Moody's confirms Fiat's Ba1 ratings; outlook negative
