Frankfurt am Main, March 06, 2018 -- Moody's Investors Service, ("Moody's") has
today upgraded to Ba2 from Ba3 the corporate family rating (CFR) and to
Ba2-PD from Ba3-PD the probability of default rating (PDR)
of Fiat Chrysler Automobiles N.V. (FCA). Concurrently,
Moody's has upgraded to Ba3 from B1 FCA's senior unsecured notes rating
and to Baa2 from Baa3 the rating of the senior secured term loan B issued
by FCA US LLC, a subsidiary of FCA. The outlook on all ratings
has been changed to stable from positive.
"FCA's upgrade reflects the significant improvements in its
credit metrics over the past three years especially the reduction of its
financial leverage," said Falk Frey, a Senior Vice President
and lead analyst for FCA. "We anticipate a continued strong
operating performance in the current year, based on a number of
high margin product renewals in the SUV- and pick-up segment,"
Frey added.
A full list of affected entities and ratings can be found at the end of
this press release.
RATINGS RATIONALE
In 2017 FCA's worldwide combined shipments (including shipments
from unconsolidated joint ventures) of 4.7 million units were basically
unchanged compared to the previous year resulting in net revenues of EUR111
billion (2016: EUR111 billion). An improved product mix was
the main driver of a 16% increase in the reported adjusted EBIT
of EUR7.1 billion. All regions and divisions reported an
improvement in its adjusted EBIT and margin.
These reported numbers resulted in an EBITA margin improvement to 5.5%
(as adjusted by Moody's) from 3.9% in 2016, free cash
flow generation (as adjusted by Moody's) of EUR1.1 billion
(2016: EUR1.8 billion), a reduction in gross debt to
EUR24.4 billion (as adjusted by Moody's) from 30.4
billion in 2016 and a reduced leverage (Moody's adjusted debt/EBITDA)
of 2.4x compared with 3.5x in 2016.
For 2018 Moody's anticipates FCA's operating performance and
cash flow generation to continue to improve driven by successful new product
launches in high margin SUV and pick-up segments like the Jeep
Cherokee and Jeep Wrangler as well as the Ram 1500 pickup, despite
the slight decline in US light vehicles demand that Moody's anticipates
in 2018 (-2%) as well as the continued ramp-up of
the all-new Jeep Compass following completion of its worldwide
roll-out in 2017.
FCA's rating is constrained by a significant dependency on operating
performance from its business in the US, with a strong reliance
on performance of the Jeep and Ram models. Given the strong market
dynamics there, FCA's numbers are reflective of a cyclical
industry that has reached a peak, even though we do not expect a
severe decline for the current year. However, a weaker market
environment in the US could have adverse effects on FCA's performance
and, hence, leverage. In addition, FCA together
with all other automotive OEMs is exposed to the transition risks of the
industry towards alternative fuel vehicles, and autonomous driving
technologies, which will weigh negatively on future cash flow generation.
FCA is subject to emissions investigations in Europe and most notably
in the US. In January 2017, the U.S. Environmental
Protection Agency ("EPA") accused FCA of violating the US
Clean Air Act, alleging that FCA US LLC (FCA US) failed to disclose
certain emissions control strategies. While discussions on possible
penalties seem premature, the US Clean Air Act provides for theoretical
fines of up to USD4.6 billion (does not include possible fines
imposed by other authorities or civil damages). Moody's believes
that a mid-single digit billion Euro amount of one-time
expenses could be compensated within the Ba2 rating.
LIQUIDITY
As of 31 December 2017, FCA's liquidity profile is considered good,
underpinned by EUR12.8 billion in reported cash and marketable
securities as well as access to undrawn EUR7.6 billion committed
revolving credit facilities (RCFs). The RCFs have been upsized
by EUR1.25 billion in March 2017 and its maturities have been extended,
with EUR3.1 billion maturing in April 2020 (with two 1-year
extension options available) and EUR3.1 billion in March 2022.
These funding sources should cover FCA's anticipated cash requirements
over the next 12 months, which comprise principally capex,
debt maturities (EUR6.9 billion in 2018), cash for day-to-day
needs and a modest amount of dividends paid to non-controlling
interests.
RATING OUTLOOK
The stable outlook is based on our expectation that FCA's operating
performance and cash flow generation will continue to improve in 2018
driven by successful new product launches in high margin SUV and pick-up
segments like the Jeep Cherokee and Jeep Wrangler as well as the Ram 1500
pickup, despite the slight decline in US light vehicles demand that
Moody's anticipates in 2018 (-2%) as well as the continued
ramp-up of the all-new Jeep Compass following completion
of its worldwide roll-out in 2017. This should translate
into credit metrics that position it comfortably in the current rating
category e.g. Moody's-adjusted (gross) debt/EBITDA
around 2.0x and a positive free cash flow exceeding EUR2.0
billion.
The stable outlook further reflects Moody's expectation that FCA's
business setup has the capacity to contend with the long-term cyclicality
within the global passenger vehicle markets and its challenging landscape
as a result of heavy investment requirements for (1) alternative propulsion
technologies; (2) driverless vehicles; (3) the shift of production
capacities towards alternative fuel vehicles; (4) connectivity as
well as (5) regulations relating to vehicle safety, emissions and
fuel economy.
WHAT COULD CHANGE THE RATINGS UP/DOWN
FCA's ratings might come under downward pressure should FCA's
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 or material fines would hurt the
company's brand image.
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 3.5x.
Qualitatively, upward pressure on FCAs rating could materialize
if the company is able to demonstrate a product breadth and improved market
position which is more in line relative to its Baa3 rated peers as well
as sustainability in its current operating profitability and cash flow
generation, even if market conditions were to weaken in the US and
in Europe. An upgrade of FCAs rating would also hinge on the company's
ability to resolve the current legal investigations in the US and Europe
surrounding the diesel emissions issues, without a material impact
on the company's credit metrics, and without a serious impact
on its reputation, as evidenced by a loss of market share.
Quantitatively, an upgrade could occur if FCA were able to achieve
(1) a Moody's-adjusted EBITA margin around 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, (3)
a reduction in leverage based on Moody's-adjusted (gross)
debt/EBITDA sustainably below 2.0x.
STRUCTURAL CONSIDERATIONS
We have considered the senior unsecured notes issued by FCA and its treasury
companies as structurally subordinated to a significant portion of financial
and non-financial debt (including the remaining USD1.0 billion
senior secured term loan B at FCA US), located at the level of FCA's
operating subsidiaries largely consisting of trade payables. Consequently,
the ratings of FCA's outstanding senior unsecured bonds is Ba3,
or one notch below the Ba2 CFR, according to Moody's Loss Given
Default Methodology, and the rating assigned to FCA US's secured
term loan B is Baa2.
LIST OF AFFECTED RATINGS
Issuer: Fiat Chrysler Automobiles N.V.
..Upgrades:
....LT Corporate Family Rating, upgraded
to Ba2 from Ba3
....Probability of Default Rating, upgraded
to Ba2-PD from Ba3-PD
....Senior Unsecured Regular Bond/Debenture,
upgraded to Ba3 from B1
....Senior Unsecured Shelf, upgraded
to (P)Ba3 from (P)B1
....Senior Unsecured Medium-Term Note
Program, upgraded to (P)Ba3 from (P)B1
..Affirmation:
....Other Short Term, affirmed (P)NP
..Outlook Action:
....Outlook changed to Stable from Positive
Issuer: FCA US LLC
..Upgrades:
....Senior Secured Bank Credit Facility,
upgraded to Baa2 from Baa3
..Outlook Action:
....Outlook changed to Stable from Positive
Issuer: Fiat Chrysler Finance Europe SA
..Upgrades:
....Backed Senior Unsecured Regular Bond/Debenture,
upgraded to Ba3 from B1
....Backed Senior Unsecured Medium-Term
Note Program, upgraded to (P)Ba3 from (P)B1
..Affirmation:
....Backed Senior Unsecured Medium-Term
Note Program, affirmed (P)NP
..Outlook Action:
....Outlook changed to Stable from Positive
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.
Having its corporate seat in Amsterdam, the Netherlands, and
the place of effective management in the United Kingdom, FCA is
one of the world's largest automotive manufacturers by unit sales.
Its portfolio of brands includes Abarth, Alfa Romeo, Chrysler,
Dodge, Fiat, Fiat Professional, Jeep, Lancia,
Ram, Maserati and Mopar, the parts and service brand.
In 2017 FCA generated consolidated net revenues of EUR111 billion and
reported an adjusted EBIT of EUR7.1 billion.
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 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
Matthias Hellstern
MD - Corporate Finance
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
