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Rating Action:

Moody's upgrades Daimler to A2, stable outlook

03 Feb 2017

Frankfurt am Main, February 03, 2017 -- Moody's Investors Service, ("Moody's") has today upgraded Daimler AG's (Daimler) long-term ratings to A2 from A3 and concurrently upgraded all long term ratings of its rated subsidiaries to A2 from A3. Moody's has also upgraded Daimler's short term ratings to (P)P-1 from (P)P-2. The outlook has been changed to stable from positive.

"The upgrade of Daimler to A2 reflects the company's track record of a robust operational performance in recent years supported by a continued successful product renewal program and the ongoing expansion of Daimler's product portfolio as well as its regional presence," says Falk Frey, a Senior Vice President and lead analyst for Daimler. "This should position the company well to weather future challenges, such as the transition towards alternative fuel vehicles or the development of autonomous driving" Mr. Frey added.

A full list of affected entities and ratings can be found at the end of this press release

Key drivers of the upgrade are:

• A strong commercial performance since late 2013 fuelled by the introduction of the new generation of one of its core models namely the new E-Class as well as other new products including the coupe SUV GLC. The current model pipeline includes further E-Class model variants, a facelift of the core model S-Class as well as new Smart electro versions;

• Daimler has exceeded its upgrade trigger for profitability since 2014 sustainably which we expect to continue for the following 2-3 years despite cyclical swings in global car- and truck markets;

• We expect that the company should be able to sustain a strong operating performance and maintain its current robust credit metrics despite rising capex and high R&D expenses;

• Daimler has delivered a sustainable free cash flow in the industrial business of more than 15% of debt (2014: 15.4%, 2015: 26.5%);

• Financial policy in the last 12-18 months has increasingly focused improving the cash position and covering dividends with internally-generated cash flows, which is different from earlier years;

• As a result of recent model renewals and facelifts, Daimler was able to close the gap to BMW Group (A1 stable) in terms of annual unit sales by reaching about 2.2 million delivered cars of the Mercedes-Benz Cars division (including smart), increasing sales every year since 2009 trough levels while surpassing pre-financial crisis levels already in 2011.

RATINGS RATIONALE

In spite of Daimler's track record of strong financial performance in recent years, all of its business units (passenger cars, vans, and trucks) operate in cyclical and highly competitive industries. We believe that especially for its key Mercedes-Benz Cars division market demand has peaked in two very important markets, the US and Europe, with rising incentives and uncertainty resulting from Brexit as well as a changing trade rules under the new US Government, and continued weakness in South America. We further recognize a number of challenges that the auto industry will face, relating to connectivity; autonomous driving; alternative propulsion technologies; regulations relating to vehicle safety, emissions and fuel economy, as well as new market entrants, which we expect will require increased investment by Daimler and its peers in coming years. However, Moody's believes that Daimler is well prepared to contend with these additional challenges, and as such we expect that its credit metrics will remain comfortable for the A2 rating category despite some possible temporary erosion over the next two years.

Daimler increased its total unit sales in the year 2016 by 5% to around 3 million vehicles (including Trucks, Buses and Vans) which resulted in Daimler Group revenue growth of 3% to €153.3 billion in 2016 (2015: €149.5 billion)Reported Daimler Group EBIT declined to €12.9 billion in 2016 from €13.2 billion in the previous year whereas EBIT adjusted for special items, such as the cost for the recall for cars equipped with Takata airbags, increased to €14.2 billion in 2016 from €13.8 billion in 2015. Reported free cash flow of industrial operations (as defined by the company) remained largely in line with 2015 levels at €3.9 billion for 2016. Net industrial liquidity (as defined by the company) increased to €19.7 billion from €18.6 billion at the end of December 2015.

These figures should translate into Moody's adjusted key credit metrics of a leverage ratio (debt/EBITDA) well below 1.0x, RCF/Debt of around 80% and a free cash flow of around €2.0 billion. EBITA margin is estimated to be around 8.7%, close to the 8.8% level achieved in 2015.

Liquidity

As of 31 December 2016, the company's sources of cash included cash and marketable securities in excess of EUR20.0 billion as well as EUR9.0 billion available under its syndicated credit facility (maturing in 2020). In our theoretical scenario of no access to the capital markets for its manufacturing and financial services activities, Daimler had a coverage of less than 12 months of its corporate needs as of 31 December 2016. This largely reflects the large debt repayments, usually short-dated, of its growing financial services arm, captured in our liquidity analysis. In addition to that, we anticipate Daimler's capex spending and working capital requirements will remain high which together with its dividend distributions will constrain its liquidity profile in coming quarters. Given the self-liquidating/ amortizing nature of credit contracts in the financial services division, such a liquidity situation is acceptable despite Daimler's high rating category.

Rating Outlook

The stable outlook reflects Moody's expectation that Daimler'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) autonomous driving; (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 rating Down/Up

Given the cyclicality of the industry and technological challenges facing companies in the industry, we do not anticipate any upward movement on Daimler's rating during the intermediate term. Despite the company's strong credit metrics, the A2 rating should remain appropriate given the long-term cyclicality in the global passenger vehicle markets. This rating level can also accommodate a temporarily elevated capex and R&D spending. An upgrade of Daimler's ratings would require a sustained strong operational and financial performance through a cyclical downturn. Upward pressure on the ratings could occur should Daimler demonstrate continued high earnings and cash generation levels on a sustained basis, while at the same time (1) maintaining its brand equity value; (2) successfully introducing additional new models and variants; (3) defending its strong market share position in the premium car markets; (4) defending its technological leadership positioning; (5) meeting the required emission standards and (6) improving its liquidity coverage beyond the current level.

The A2 ratings could come under pressure should (1) Daimler exhibit a sustained negative market share development in its key markets; (2) FCF generation negatively impacted by a more aggressive financial policy; (3) the company's EBITA margin fall below 7.0% for two or more years in a row; (4) its leverage (debt/EBITDA) exceed 2.0x on a sustainable basis; (5) the group's liquidity profile weakens, or (6) if there are any emission-related issues that would lead to significant fines, or other remediation measures, which is currently not part of our assumptions.

List of affected ratings:

Upgrades:

..Issuer: Daimler AG

.... Issuer Rating, Upgraded to A2 from A3

....Senior Unsecured Commercial Paper, Upgraded to P-1 from P-2

....Senior Unsecured Medium-Term Note Program, Upgraded to (P)A2 from (P)A3

....Senior Unsecured Medium-Term Note Program, Upgraded to (P)P-1 from (P)P-2

....Senior Unsecured Regular Bond/Debenture, Upgraded to A2 from A3

..Issuer: Daimler Australia/Pacific Pty. Ltd

....BACKED Senior Unsecured Medium-Term Note Program, Upgraded to (P)A2 from (P)A3

....BACKED Senior Unsecured Medium-Term Note Program, Upgraded to (P)P-1 from (P)P-2

..Issuer: Daimler Canada Finance Inc.

....Senior Unsecured Commercial Paper, Upgraded to P-1 from P-2

....BACKED Senior Unsecured Commercial Paper, Upgraded to P-1 from P-2

....BACKED Senior Unsecured Medium-Term Note Program, Upgraded to (P)A2 from (P)A3

....BACKED Senior Unsecured Medium-Term Note Program, Upgraded to (P)P-1 from (P)P-2

....BACKED Senior Unsecured Regular Bond/Debenture, Upgraded to A2 from A3

..Issuer: Daimler Finance North America LLC

....BACKED Senior Unsecured Commercial Paper, Upgraded to P-1 from P-2

....BACKED Senior Unsecured Medium-Term Note Program, Upgraded to (P)A2 from (P)A3

....BACKED Senior Unsecured Regular Bond/Debenture, Upgraded to A2 from A3

....BACKED Senior Unsecured Shelf, Upgraded to (P)A2 from (P)A3

..Issuer: Daimler International Finance B.V.

....Senior Unsecured Commercial Paper, Upgraded to P-1 from P-2

....BACKED Senior Unsecured Medium-Term Note Program, Upgraded to (P)A2 from (P)A3

....BACKED Senior Unsecured Regular Bond/Debenture, Upgraded to A2 from A3

..Issuer: DaimlerChrysler Company LLC

....BACKED Senior Unsecured Regular Bond/Debenture, Upgraded to A2 from A3

..Issuer: Mercedes-Benz Australia/Pacific Pty. Ltd

....BACKED Senior Unsecured Medium-Term Note Program, Upgraded to (P)A2 from (P)A3

....BACKED Senior Unsecured Regular Bond/Debenture, Upgraded to A2 from A3

..Issuer: Mercedes-Benz Financial Services Italia

....BACKED Senior Unsecured Regular Bond/Debenture, Upgraded to A2 from A3

..Issuer: Mercedes-Benz Finansman Turk A.S.

....BACKED Senior Unsecured Medium-Term Note Program, Upgraded to (P)A2 from (P)A3

....BACKED Senior Unsecured Medium-Term Note Program, Upgraded to (P)P-1 from (P)P-2

....BACKED Senior Unsecured Regular Bond/Debenture, Upgraded to A2 from A3

..Issuer: Mercedes-Benz Japan Co., Ltd.

....BACKED Senior Unsecured Medium-Term Note Program, Upgraded to (P)A2 from (P)A3

....BACKED Senior Unsecured Medium-Term Note Program, Upgraded to (P)P-1 from (P)P-2

....BACKED Senior Unsecured Regular Bond/Debenture, Upgraded to A2 from A3

..Issuer: Mercedes-Benz South Africa Limited

....BACKED Senior Unsecured Medium-Term Note Program, Upgraded to (P)A2 from (P)A3

....BACKED Senior Unsecured Medium-Term Note Program, Upgraded to (P)P-1 from (P)P-2

Affirmations:

..Issuer: Mercedes-Benz South Africa Limited

....NSR BACKED Senior Unsecured Medium-Term Note Program, Affirmed (P)Aaa.za

....NSR BACKED Senior Unsecured Medium-Term Note Program, Affirmed (P)P-1.za

Outlook Actions:

..Issuer: Daimler AG

....Outlook, Changed To Stable From Positive

..Issuer: Daimler Australia/Pacific Pty. Ltd

....Outlook, Changed To Stable From Positive

..Issuer: Daimler Canada Finance Inc.

....Outlook, Changed To Stable From Positive

..Issuer: Daimler Finance North America LLC

....Outlook, Changed To Stable From Positive

..Issuer: Daimler International Finance B.V.

....Outlook, Changed To Stable From Positive

..Issuer: DaimlerChrysler Company LLC

....Outlook, Changed To Stable From Positive

..Issuer: Mercedes-Benz Australia/Pacific Pty. Ltd

....Outlook, Changed To Stable From Positive

..Issuer: Mercedes-Benz Financial Services Italia

....Outlook, Changed To Stable From Positive

..Issuer: Mercedes-Benz Finansman Turk A.S.

....Outlook, Changed To Stable From Positive

..Issuer: Mercedes-Benz Japan Co., Ltd.

....Outlook, Changed To Stable From Positive

..Issuer: Mercedes-Benz South Africa Limited

....Outlook, Changed To Stable From Positive

The principal methodology used in these ratings was "Global Automobile Manufacturer Industry" published in June 2011. Please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.

Moody's National Scale Credit Ratings (NSRs) are intended as relative measures of creditworthiness among debt issues and issuers within a country, enabling market participants to better differentiate relative risks. NSRs differ from Moody's global scale credit ratings in that they are not globally comparable with the full universe of Moody's rated entities, but only with NSRs for other rated debt issues and issuers within the same country. NSRs are designated by a ".nn" country modifier signifying the relevant country, as in ".za" for South Africa. For further information on Moody's approach to national scale credit ratings, please refer to Moody's Credit rating Methodology published in May 2016 entitled "Mapping National Scale Ratings from Global Scale Ratings". While NSRs have no inherent absolute meaning in terms of default risk or expected loss, a historical probability of default consistent with a given NSR can be inferred from the GSR to which it maps back at that particular point in time. For information on the historical default rates associated with different global scale rating categories over different investment horizons, please see https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_189530.

Headquartered in Stuttgart, Germany, Daimler is one of the world's leading premium passenger car manufacturers through its highly valuable Mercedes-Benz Cars premium brand and a global leader in the medium and heavy trucks market with solid market shares in Europe, Brazil, NAFTA and Japan. In 2016 Daimler generated revenues of €153 billion and a reported EBIT of €13 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
SUBSCRIBERS: 44 20 7772 5454

Matthias Hellstern
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

No Related Data.
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