Approximately EUR11.9 billion of debt affected
Frankfurt am Main, February 11, 2014 -- Moody's Investors Service has today downgraded the corporate family
rating (CFR) and the probability of default rating (PDR) of Fiat S.p.A.
to B1 from Ba3 and to B1-PD from Ba3-PD, respectively.
Concurrently, Moody's has downgraded to B2 from B1 the debt
issued by Fiat's rated subsidiaries, Fiat Finance and Trade
Ltd. S.A. and Fiat Finance North America Inc.,
as well as Fiat Finance Canada Ltd.'s (P)B2 rating.
Additionally, all (P)NP ratings have been confirmed. The
outlook on all ratings has been changed to stable from negative.
This rating action concludes the review for downgrade initiated on 7 January
2014.
"We have downgraded Fiat's ratings following its weaker-than-expected
performance in fiscal year 2013 and our view that the company faces significant
challenges in terms of achieving its outlook guidance for the current
fiscal year, " says Falk Frey, a Moody's Senior
Vice President and lead analyst for Fiat. "We are also concerned
that Fiat may not be able to offset any further profitability deterioration
in its Latin American operation through anticipated improvements in other
regions and in its Luxury and Performance division," Mr.
Frey added. The action also considers the EUR1.27 billion
cash outflow in connection with the company's 100% ownership
of Chrysler Group LLC (B1 stable).
RATINGS RATIONALE
-- DOWNGRADE OF CFR AND PDR TO B1 AND B1-PD,
RESPECTIVELY--
Today's ratings action reflects Fiat's weaker-than-expected
financial performance in 2013 fiscal year. The company reported
net revenues of EUR86.8 billion and a trading profit of EUR3.4
billion for fiscal year 2013, which fell slightly short of its guidance
range of EUR3.5-3.8 billion and compares unfavourably
with revenues and trading profit in fiscal year 2012 of EUR84.0
billion and EUR3.5 billion, respectively. Excluding
Chrysler, Fiat generated revenues of EUR35.6 billion in fiscal
year 2013, which is on a par with its fiscal 2012 results,
and a trading profit of EUR246 million, which represents a significant
drop compared with EUR338 million in the previous fiscal year.
While the Fiat Group's consolidated cash flow from operating activities
net of capital expenditure (capex) was slightly positive (EUR79 million)
in fiscal year 2013, the reported cash flow from operating activities
net of capex for Fiat (excluding Chrysler) was a negative EUR1.6
billion compared with a negative EUR2.8 billion in fiscal year
2012 partly driven by a positive working capital inflow of EUR1.1
billion in fiscal year 2013 compared with an outflow of EUR0.6
billion in fiscal year 2012. Fiat's (ex Chrysler) net industrial
debt increased to nearly EUR6.9 billion at 31 December 2013 from
EUR5.0 billion in the previous fiscal year.
Fiat's guidance for fiscal year-end 2014 is for consolidated
net industrial debt in the range of EUR9.8-10.3 billion.
This includes an amount of EUR2.7 billion in relation to the Q1
2014 acquisition of the remaining Chrysler stake as well as a EUR0.3
billion IFRS 11 adjustment. Consequently, the Fiat Group
expects negative operational cash flow of between EUR0.1-0.6
billion for fiscal 2014. Moody's understands that,
on a standalone basis, Chrysler is anticipating positive free cash
flow (FCF) from operating activities for fiscal year 2014 in the USD0.5-1.0
billion range. This will result in anticipated cash consumption
for Fiat (excluding Chrysler) of up to EUR1.0 billion. Moody's
believes that it will be challenging for Fiat to meet its targets for
fiscal year 2014, given the profitability deterioration in Latin
America, the weakening local currencies and rising competitive pressure
in the Brazilian car market.
Given that Fiat bondholders will be unable to fully access Chrysler's
on balance sheet cash and the cash flow it generates, Moody's
intends to maintain separate CFRs for Chrysler and Fiat for the time being.
However, it is likely that these would merge over time to the extent
that the financing arrangements of the two entities converge.
Fiat's B1 rating negatively reflects (1) constraints on the company's
access to the cash and cash flows of Chrysler and Moody's expectation
that this situation is unlikely to change in the short term (e.g.,
within the existing covenant limits in the bond and loan documentation
of Chrysler, dividend payouts are limited to 50% of the net
income basket, while intercompany lending to Fiat is feasible with
the only limitation that it has to be done on an arm's length basis);
(2) the weak standalone credit metrics of Fiat as evidenced by an estimated
Moody's-adjusted debt/EBITDA of around 10.3x and reported
negative free cash flow of EUR1.5 billion for fiscal year 2013
with limited improvement likely in fiscal year 2014; (3) Fiat's
(excluding Chrysler) high reliance on the European passenger car market,
particularly in its Italian home market, which represents approximately
half of Fiat's European car registrations; (4) rising price
pressures and rebates in Europe; (5) rapidly eroding profitability
in Latin America (mainly Brazil) driven by increasing competition,
additional capacities, high price pressure and the weakness of the
Latin American exchange rates against the euro; (6) the group's
significant overcapacities in Italy with no immediate plan for further
capacity adjustment, with Fiat planning to utilize EMEA production
base to develop its global brands (Alfa Romeo, Maserati, Jeep
and the Fiat 500 "family"); and (7) the risk that the
delay in model renewals and the absence of any major new volume model
launch in 2014 might further derail Fiat's competitive position
in Europe.
On the positive side, Fiat's rating also takes into account
(1) the inclusion of Chrysler, which has helped to improve Fiat's
previously very limited geographic diversification and potential cost
savings from increasing operational integration between Fiat and Chrysler
(e.g., common architecture, modules and technologies
as well as purchasing and world class manufacturing); (2) a strong
and growing profit contribution from Fiat's Luxury and Performance
division (namely, Maserati and Ferrari), which is driven by
a widening product offering; (3) its leading market position in Brazil
(with an approximate market share of 21.5% in 2013),
which has been the group's major source of profits and cash flows
in recent years; and (4) a dominant domestic Italian market presence,
with a market share of approximately 29%. However,
sovereign austerity programmes and the debt crisis' adverse impact
on the Italian economy could continue to negatively affect car demand
in the group's key market.
RATIONALE FOR STABLE OUTLOOK
The stable outlook reflects Moody's expectations that (1) Fiat (excluding
Chrysler) would be able to limit negative operating FCF to below EUR1.5
billion in fiscal year 2014; (2) Fiat's losses in Europe,
the Middle East and Africa from its mass market brands can be further
reduced in the current year towards breakeven levels anticipated to be
achieved in mid-decade; (3) Maserati's model expansion
programme will further increase profits from the Luxury and Performance
division; (4) consolidated negative FCF will be limited to around
EUR1.0 billion. Furthermore, the stable outlook anticipates
that profitability deterioration in Fiat's Latin American operations
can be offset by improving performance from other regions and in its Luxury
and Performance division. A weakening performance at Chrysler could
also put pressure on Fiat's ratings.
LIQUIDITY
As of 31 December 2013, Fiat's liquidity profile on a standalone
basis was deemed adequate, after the approximately EUR1.27
billion cash outflow for the acquisition of the remaining membership interests
in Chrysler in the first quarter of 2014. As of 31 December 2013,
the Fiat Group (excluding Chrysler) reported EUR9.8 billion in
cash and marketable securities in the industrial business, as well
as an undrawn EUR2.1 billion revolving credit facility maturing
in July 2016, which contains conditionality language in the form
of financial covenants with significant headroom. These funding
sources should cover Fiat's anticipated cash requirements over the next
12-18 months, which comprise capex, debt maturities,
cash for day-to-day needs and minority dividends.
STRUCTURAL CONSIDERATIONS
The senior unsecured notes issued by Fiat's treasuries --
Fiat Finance &Trade, Fiat Finance North America and Fiat Finance
Canada, with the latter not currently having any notes outstanding
-- are structurally subordinated to a significant portion
of liabilities located at Fiat's operating subsidiaries (mainly trade
payables), with a preferred claim on the cash flows at these entities.
Consequently, the ratings of Fiat's outstanding bonds are currently
one notch below the group's CFR, according to Moody's Loss Given
Default Methodology.
WHAT COULD CHANGE THE RATINGS DOWN/UP
Moody's could downgrade Fiat's ratings if the company failed
to limit its standalone negative net industrial free cash flow to EUR1.5
billion in fiscal year 2014, with no indication of a material improvement
in fiscal year 2015. The rating could also come under downward
pressure if (1) Fiat was to lose significant market share in Europe;
and/or (2) the company's earnings and cash flow contribution from its
Brazilian operations, a major source of cash flow, were to
decline to an extent that it cannot be offset by anticipated improvements
in its other regions and its Luxury and Performance division. Negative
pressure could also develop if the Chrysler product renewal programme
was to stall as evidenced by the group's inability to generate a
trading profit of around EUR3.0 billion on a consolidated basis.
Upward pressure on Fiat's rating could come if Fiat standalone would
be able to achieve positive FCF exceeding EUR1.0 billion that will
be used to reduce debt and, on a consolidated basis, could
generate significantly more than EUR4.0 billion in trading profit
in fiscal year 2014, with visibility of further improvements in
2015 and beyond.
PRINCIPAL METHODOLOGIES
The principal methodology used in these ratings was the Global Automobile
Manufacturer Industry published in June 2011. Other methodologies
used include Loss Given Default for Speculative-Grade Non-Financial
Companies in the U.S., Canada and EMEA published in
June 2009. Please see the Credit Policy page on www.moodys.com
for a copy of these methodologies.
Headquartered in Torino, Italy, Fiat S.p.A.
is one of Italy's leading industrial groups and one of Europe's largest
automotive manufacturers by unit sales. Fiat S.p.A.
who owns 100% of Chrysler (B1 stable), generated consolidated
group net revenues of EUR86.8 billion and reported a trading profit
of EUR3.4 billion in the fiscal year 2013.
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.
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
Eric de Bodard
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
Moody's downgrades Fiat's CFR to B1; stable outlook
