Approximately EUR11.7 billion of debt affected
Frankfurt am Main, January 07, 2014 -- Moody's Investors Service has today placed on review for downgrade
the Ba3 corporate family rating (CFR) and the Ba3-PD probability
of default rating (PDR) of Fiat S.p.A. Concurrently,
Moody's has also placed on review for downgrade 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)B1 rating.
The rating action is triggered by Fiat's announcement that it has
signed an agreement with the VEBA Trust to acquire all outstanding membership
interests in Chrysler Group LLC (Chrysler), in which it currently
holds a 58.5% majority stake.
"We are putting Fiat's ratings on review for downgrade because
the announced acquisition will materially weaken Fiat's liquidity
position at a time when the company is still free cash flow negative,"
says Falk Frey, a Moody's Senior Vice President and lead analyst
for Fiat. "That said, we anticipate that Fiat's
remaining cash on balance sheet, unused credit facilities and operating
cash flow generation should be sufficient to meet its anticipated cash
needs in 2014."
On Review for Possible Downgrade:
..Issuer: Fiat Finance & Trade Ltd.
....Senior Unsecured Medium-Term Note
Program, Placed on Review for Possible Downgrade, currently
(P)B1
....Senior Unsecured Medium-Term Note
Program, Placed on Review for Possible Downgrade, currently
(P)NP
....Senior Unsecured Regular Bond/Debenture
Nov 22, 2017, Placed on Review for Possible Downgrade,
currently B1
....Senior Unsecured Regular Bond/Debenture
Nov 23, 2016, Placed on Review for Possible Downgrade,
currently B1
....Senior Unsecured Regular Bond/Debenture
Sep 7, 2015, Placed on Review for Possible Downgrade,
currently B1
....Senior Unsecured Regular Bond/Debenture
Sep 15, 2014, Placed on Review for Possible Downgrade,
currently B1
....Senior Unsecured Regular Bond/Debenture
Jul 8, 2014, Placed on Review for Possible Downgrade,
currently B1
....Senior Unsecured Regular Bond/Debenture
Apr 1, 2016, Placed on Review for Possible Downgrade,
currently B1
....Senior Unsecured Regular Bond/Debenture
Jul 8, 2018, Placed on Review for Possible Downgrade,
currently B1
....Senior Unsecured Regular Bond/Debenture
Mar 15, 2018, Placed on Review for Possible Downgrade,
currently B1
....Senior Unsecured Regular Bond/Debenture
Oct 14, 2019, Placed on Review for Possible Downgrade,
currently B1
....Senior Unsecured Regular Bond/Debenture
Oct 17, 2016, Placed on Review for Possible Downgrade,
currently B1
....Senior Unsecured Regular Bond/Debenture
Mar 23, 2017, Placed on Review for Possible Downgrade,
currently B1
....Senior Unsecured Regular Bond/Debenture
Feb 13, 2015, Placed on Review for Possible Downgrade,
currently B1
..Issuer: Fiat Finance Canada Ltd.
....Senior Unsecured Medium-Term Note
Program, Placed on Review for Possible Downgrade, currently
(P)B1
..Issuer: Fiat Finance North America Inc.
....Senior Unsecured Medium-Term Note
Program, Placed on Review for Possible Downgrade, currently
(P)B1
....Senior Unsecured Medium-Term Note
Program, Placed on Review for Possible Downgrade, currently
(P)NP
....Senior Unsecured Regular Bond/Debenture
Jun 12, 2017, Placed on Review for Possible Downgrade,
currently B1
..Issuer: Fiat S.p.A.
.... Probability of Default Rating,
Placed on Review for Possible Downgrade, currently Ba3-PD
.... Corporate Family Rating, Placed
on Review for Possible Downgrade, currently Ba3
....Senior Unsecured Medium-Term Note
Program, Placed on Review for Possible Downgrade, currently
(P)B1
....Senior Unsecured Medium-Term Note
Program, Placed on Review for Possible Downgrade, currently
(P)NP
Outlook Actions:
..Issuer: Fiat Finance & Trade Ltd.
....Outlook, Changed To Rating Under
Review From Negative
..Issuer: Fiat Finance Canada Ltd.
....Outlook, Changed To Rating Under
Review From Negative
..Issuer: Fiat Finance North America Inc.
....Outlook, Changed To Rating Under
Review From Negative
..Issuer: Fiat S.p.A.
....Outlook, Changed To Rating Under
Review From Negative
RATINGS RATIONALE
The decision to place Fiat's ratings on review for downgrade was
prompted by the company's announcement on 1 January 2014 that it
has signed an agreement with the VEBA Trust to acquire all outstanding
membership interests in Chrysler. According to the statement,
the VEBA Trust will receive a total consideration amounting to USD3.65
billion (approximately EUR2.65 billion) of which Fiat will pay
USD1.75 billion (approximately EUR1.27 billion) as of the
expected date of closing of the transaction (on or before 20 January 2014)
and Chrysler the remaining USD1.9 billion as special dividend (of
which USD1.1 billion relating to Fiat's current 58.5%
stake). In addition, Chrysler will make a USD700 million
contribution, which will be paid in four equal annual instalments
beginning at the date of closing of the deal.
Given the substantial cash outflow of around EUR1.27 billion at
the closing of the transaction, Fiat's standalone cash and
marketable securities in the industrial business will reduce to approximately
EUR7.1 billion from EUR8.4 billion on a pro-forma
basis as of 30 September 2013. As a consequence, Fiat's
liquidity position will weaken materially. As per 30 September
2013, Fiat's debt maturities (excluding Chrysler) for the
next five quarters until end 2014 total EUR5.9 billion.
Summing up all expected cash requirements in Moody's standard scenario
(including capex, working capital swings, day-to-day
needs) the remaining cash on balance sheet together with Fiat's
available unused credit facility (EUR2.1 billion), and operating
cash flow generation should be sufficient to cover all these anticipated
cash needs in 2014.
The transaction will facilitate further integration of the financial and
operating strategies of the two companies. Nonetheless, Moody's
notes that at this stage Fiat has not yet decided on the legal form of
its future combined entity following the 100% ownership of Chrysler
held by its Fiat North America LLC, a fully owned indirect subsidiary
of Fiat S.p.A. Correspondingly, Moody's
cautions that, despite Fiat's consolidated financial results,
which benefit from the current strong performance of Chrysler, Fiat
bondholders will be unable to fully access Chrysler's on balance
sheet cash and the cash flow it generates, except for restricted
payments under Chrysler's credit agreements and bond documentations
(within the existing covenant limits, dividend payout limited to
50% of 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). As such, 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 financing
arrangements of the two entities would converge.
Moody's expects that Fiat's standalone financial performance
and credit metrics will weaken further as of year-end 2013 (compared
with LTM 30 September 2013 figures) with only limited potential for meaningful
improvement in 2014. Disaggregating Chrysler's financials
from Fiat's consolidated accounts, Fiat's standalone
credit metrics are weak for its Ba3 corporate family rating, as
evidenced by an adjusted debt/EBITDA of around 10.3x and negative
free cash flow of approximately EUR1.2 billion for the 12 months
ended September 2013.
In addition, Moody's cautions that Fiat's operational
and financial performance in Brazil, which, for Fiat standalone,
is its most profitable foreign market (market share of approx.
21.3%), has deteriorated markedly since 2011,
primarily owed to rising competitive pressure. In Moody's
opinion, Fiat's ability to compensate for the sluggish demand
in Italy has diminished further, with domestic passenger car sales
dropping 7.7% year-on-year in the first 11
months of 2013.
Moody's review will focus mainly on (1) the impact of the announced
transaction on Fiat's liquidity profile for the next 12-18
months and the company plans to protect its cash position; (2) a
reassessment of the present and future capital structure and the priority
of debt within the Fiat Group, in particular the position of the
Fiat bondholders within that structure to determine whether the rating
of the instruments might be negatively affected by a potential change
of the CFR level; (3) possible further steps planned in order to
simplify the legal structure of the Group; as well as (4) the operating
performance in FY2013; and, moreover, (5) the impact
on Fiat's cash generation capability and operating performance going
forward, in view of the rising challenges in Latin America and a
continued erosion in profitability from that region, which served
as a key mitigating factor to the losses generated in the EMEA region.
Furthermore, the review will also assess possible positive impacts
on the future synergies between Fiat and Chrysler operations going forward.
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
Prior to the review process, Moody's had noted that Fiat's
rating could be downgraded if the company failed to limit its standalone
negative net industrial free cash flow to significantly less than EUR2.5
billion in 2013, with no indication of a material improvement in
2014. The rating could also come under pressure if Fiat were to
lose significant market shares in Europe and/or if the company's earnings
and cash flow contribution from its Brazilian operations, a major
source of cash flow, were to decline, most likely as a result
of rising competitive pressures from new capacities and additional market
entrants. Moreover, a further rise in Fiat's debt resulting
from its intention to purchase the remaining shares in Chrysler could,
depending on the financing mix, result in additional downward rating
pressure.
Moody's also noted prior to the review that, for the rating
agency to consider an upgrade, Fiat would have to achieve break-even
free cash flow on a standalone basis, with further indications that
it will likely achieve positive free cash flows with which it could reduce
company debt.
The principal methodology used in this rating 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.
owns a 58.5% stake in Chrysler Group LLC (rated B1/stable),
generated consolidated group revenues of EUR84.6 billion and reported
a trading profit of EUR3.5 billion in the 12 months ended September
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 places Fiat's Ba3 CFR on review for downgrade
