Frankfurt am Main, May 15, 2019 -- Moody's Investors Service, ("Moody's") has
today upgraded to Ba1 from Ba2 the corporate family rating (CFR) and to
Ba1-PD from Ba2-PD the probability of default rating (PDR)
of Fiat Chrysler Automobiles N.V. (FCA). Also,
the ratings on senior unsecured instruments issued by FCA and Fiat Chrysler
Finance Europe SA have been upgraded to Ba2 from Ba3. The outlook
has been changed to stable from positive.
"FCA's upgrade reflects the continued improvements in its
credit metrics and Moody's expectation that FCA will be able to
sustain these credit metrics even in a more challenging environment with
softening demand in some of its key markets and additional costs to comply
with upcoming emission requirements," said Falk Frey,
a Senior Vice President and lead analyst for FCA.
A full list of affected entities and ratings can be found at the end of
this press release.
RATINGS RATIONALE
Over the past four years FCA has been able to significantly reduce its
historically high gross leverage. The company cut its Moody's
gross adjusted debt by more than half within this time period, down
from EUR40 billion in 2014 to below EUR20 billion by year-end 2018
supported by a change in financial policy targeting and keeping a net
industrial cash position (as reported). Its net industrial cash
position is expected to be around EUR4.0 billion by year-end
2019 compared with EUR0.4 billion as of 03/2019 (excluding Magneti
Marelli).
Driven by successful new model launches meeting consumer's demand
for large SUV's and pick-up trucks in particular in North
America and the effects from efficiency improvements, FCA has been
able to improve its profitability in North America to the levels of its
US automotive OEM competitors. This structural improvement should
also make the company more resilient in a cyclical downturn.
In Moody's view, FCA will be relatively less affected by any
potential trade tariffs between the US and China or the US and Europe
given small market positions in China and a relatively small share of
cars imported from Europe to the US.
The recently announced agreement with Tesla on the pooling of both companies'
fleet for emission compliance is an important step in Moody's view
to avoid paying possible fines for not meeting future emission targets
especially in the EU.
FCA's first quarter results have come in weaker against tough comparables
last year, which we however expected. FCA's worldwide
combined shipments (including shipments from unconsolidated joint ventures)
have declined by 14% compared to the previous year's period,
declining to 1.0 million vehicles. While overall industry
trends in the global passenger car markets are negative, FCA has
additionally been impacted by a weakening Argentinian market and non-repeat
of overlapping production of the all-new prior generation Jeep
Wrangler during Q1 2018 in North America. Further, in the
EMEA region, shipments were down due to the planned transition to
new commercial strategies.
FCA's reported (unless otherwise noted, all financial figures
exclude Magneti Marelli) adjusted EBIT has decreased by around -29%
in Q1 2019 compared to Q1 2018, mainly driven by the declining volumes
across the regions, partially offset by positive net pricing in
North America, leading to a reported adjusted EBIT EUR1.1
billion and an adjusted EBIT margin of 4.4% compared to
5.8% in Q1 2018. FCA maintains its guidance for FY2019
with an adjusted EBIT of at least EUR6.7 billion (adjusted EBIT
margin of at least 6.1%).
On a Moody's adjusted basis these reported numbers resulted in an
EBITA margin of 5.1% for the LTM March 31, 2019 period
(5.5% fiscal year 2018), free cash flow generation
(as adjusted by Moody's) of EUR4.1 billion LTM March 31,
2019 (2018: EUR5.6 billion) and a leverage (Moody's
adjusted debt/EBITDA) of 2.0x compared with 1.9x in 2018,
well in line with the requirements for a Ba1 rating.
For 2019, Moody's anticipates FCA's operating performance
and cash flow generation to continue to improve driven by successful new
product launches in higher margin pickup truck segments with the launch
of the all-new Jeep Gladiator and Ram Heavy Duty models but also
the recent launches of the all-new Jeep Wrangler and Ram 1500 pickup,
despite a slight decline in US light vehicles demand that Moody's
anticipates in 2019 (-2.9%).
FCA's rating remains 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 brands. 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.
LIQUIDITY
As of 31 March 2019, FCA's liquidity profile is considered good,
underpinned by EUR11.9billion in reported cash and marketable securities,
as well as access to undrawn EUR7.7 billion committed revolving
credit facilities (RCFs). The maturities of the main Group's
syndicated RCF were further extended in March 2019, with EUR3.1
billion maturing in April 2022 (with two 1-year extension options
available) and EUR3.1 billion in March 2024. These funding
sources should cover FCA's anticipated cash requirements over the next
12 months, which comprise principally capex, debt maturities,
and cash for day-to-day needs.
Stable Outlook
The stable outlook is based on our expectation that FCA will continue
to improve its financial metrics further in the current fiscal year according
to the company's guidance thus achieving a Moody's adjusted
EBITA margin level of around 6% and containing its Moody's
adjusted gross leverage (debt/EBITDA) below 2.0x.
The stable outlook also assumes that FCA's financial policy will
remain conservative with no excessive dividend payouts, a more moderate
gross leverage than in the past as well as a solid liquidity profile.
What Could Change the Ratings UP
Qualitatively, upward pressure on FCAs rating could materialize
if the company is able to demonstrate a successful and sustainable improvement
in its competitive position outside the North America region in particular
Europe and China. Furthermore the company needs to implement and
successfully execute a profitable and resilient competitive position for
its Alfa Romeo and Maserati brands. An upgrade would also require
sustainability in FCA's current operating profitability and cash
flow generation, even if market conditions were to weaken in the
US and in Europe as well as its track record in successfully addressing
tougher emission standards without being a leader in supporting technologies.
Quantitatively, an upgrade could occur if FCA were able to achieve
(1) a Moody's-adjusted EBITA margin sustainably above 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 and (3) keeping
its leverage based on Moody's-adjusted (gross) debt/EBITDA
sustainably below 2.0x.
What Could Change the Ratings DOWN
FCAs ratings might come under downward pressure should FCAs 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.
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 3.0x.
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 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 Ba2,
or one notch below the Ba1 CFR, according to Moody's Loss Given
Default Methodology.
LIST OF AFFECTED RATINGS
..Issuer: Fiat Chrysler Automobiles N.V.
Affirmation:
....Other Short Term, Affirmed (P)NP
Upgrades:
....LT Corporate Family Rating, Upgraded
to Ba1 from Ba2
.... Probability of Default Rating,
Upgraded to Ba1-PD from Ba2-PD
....Senior Unsecured Shelf, Upgraded
to (P)Ba2 from (P)Ba3
....Senior Unsecured Medium-Term Note
Program, Upgraded to (P)Ba2 from (P)Ba3
....Senior Unsecured Regular Bond/Debenture,
Upgraded to Ba2 from Ba3
Outlook Actions:
....Outlook, Changed To Stable From
Positive
..Issuer: Fiat Chrysler Finance Europe SA
Affirmations:
....BACKED Other Short Term, Affirmed
(P)NP
Upgrades:
....BACKED Senior Unsecured Medium-Term
Note Program, Upgraded to (P)Ba2 from (P)Ba3
....BACKED Senior Unsecured Regular Bond/Debenture,
Upgraded to Ba2 from Ba3
Outlook Actions:
....Outlook, Changed To Stable From
Positive
PRINCIPAL METHODOLOGY
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.
CORPORATE PROFILE
Having its corporate seat in Amsterdam, the Netherlands, and
its principal executive offices in the United Kingdom, FCA is one
of the world's largest automotive manufacturers by unit sales.
Its portfolio of automotive brands includes Abarth, Alfa Romeo,
Chrysler, Dodge, Fiat, Fiat Professional, Jeep,
Lancia, Ram and Maserati. In 2018, FCA generated consolidated
net revenues of EUR110.4 billion and reported an adjusted EBIT
of EUR6.7 billion (both excluding Magneti Marelli).
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
