(The following statement was released by the rating agency)
LONDON/BARCELONA/WARSAW, September 18 (Fitch) Fitch Ratings has affirmed Fiat
Spa's (Fiat) Long-term Issuer Default Ratings (IDR) and senior unsecured rating
at 'BB-' and the Short-term IDR at 'B'. The Outlook on Fiat's Long-term IDR is
Negative. The agency has also affirmed Fiat Finance & Trade Ltd, S.A.'s (FFT)
senior unsecured rating at 'BB-'.
The ratings and Negative Outlook reflect Fiat's weak financial profile and key
credit metrics for the rating category, on a standalone basis, as well as poor
mass-market product portfolio of Fiat excluding Chrysler. The ring-fencing of
Chrysler's debt and cash flows limits the benefit of Chrysler's consolidation
for Fiat from a financial standpoint. Nonetheless, the ratings take into account
the positive impact of controlling Chrysler on the group's overall business
profile, including higher product and geographic diversification and the
potential for product development and manufacturing synergies.
Full access to Chrysler's cash and cash flows will be seen positively but
material uncertainties remain regarding the extent of investment to increase
Fiat's stake in Chrysler, as well as how these cash outflows will be financed,
and therefore the final net impact on key credit metrics. A Chrysler IPO could
possibly take place in early 2014 and help set a value on the stake Fiat does
not own and for which they are at loggerheads with the other owner, the VEBA
The Negative Outlook also reflects the significant execution risks related to
the group's strategy to reposition its brands more upscale and increase
production in Europe aimed at exporting to international markets. The total
capex and R&D necessary to finance revenue growth will weigh on free cash flow
(FCF) generation in the foreseeable future, in particular if the environment
remains depressed in Europe.
KEY RATING DRIVERS
Poor Cash Generation
Fitch expects further negative FCF in the next two to three years, even when
Chrysler is included. Negative cash flows in Europe should be mitigated by the
solid, albeit declining, performance in Brazil and from other divisions
including from its luxury brands. However, improving funds from operations (FFO)
will be absorbed by rising investment to make up for the cuts made in past
Weak Credit Metrics
Fiat's standalone gross adjusted EBITDA leverage stabilised around 6x at
end-June 2013, up from 4x at end-2011, while cash from operations/adjusted debt
fell to just 15%, which are ratios typically more commensurate with the 'B'
rating category. This is mitigated by better metrics on a net basis, in light of
Fiat's healthy liquidity.
Revised Strategic Plan
Fiat's revised strategy to reposition its brands more upscale and make Italy a
production hub for export makes sense according to Fitch but will take time and
carries significant execution risk, particularly in the current extremely
difficult competitive environment where other companies are following the same
route, and given the group's poor track record in its previous attempts to do
so. This strategy entails an acceleration of capex and R&D in the next few years
and the success of the current manufacturing reorganisation in Italy.
Chrysler Stake Increase
The current ring-fencing of Chrysler's debt and cash flows limits the benefit of
Chrysler's improvements to Fiat. Fiat can only receive up to USD500m + 50% of
cumulative net income from 1 January 2012 under its financing documentation.
However, it remains committed to reach full ownership of Chrysler by 2014 and
then fully access its cash. Fiat has exercised three 3.3% options to increase
its stake from 58.5% but the deal relies on a court judgement regarding pricing.
Overall, the timing, cost and financing of future stake increases remain
uncertain, as well as the timing to refinance Chrysler's debt and thus remove
the ring-fencing. An IPO of Chrysler is an alternative route and is likely to
occur in early 2014.
Fiat ex-Chrysler reported EUR8.7bn in cash and equivalents at end-June 2013 and
EUR2bn of undrawn credit lines. This largely covers EUR6.1bn of debt maturing in
H213-2014, as well as the negative FCF projected by Fitch in H213. However,
future stake increases in Chrysler may weaken the group's liquidity if financed
from existing cash. Chrysler has EUR0.6bn of debt maturing in H213-2014, largely
covered by EUR9.1bn in cash and marketable securities and EUR1bn of undrawn
Future developments that may, individually or collectively, lead to a negative
rating action include:
- Sustained fall in revenue and operating margins
- Mounting liquidity issues, including refinancing concerns
- Consolidated FFO gross adjusted leverage above 3x on a sustained basis
- Fiat standalone (ex-Chrysler)'s gross adjusted leverage above 5x on a
- Evidence of tangible support to Chrysler
Future developments that may, individually or collectively, lead to a positive
rating action include:
- Sustained positive FCF
- Higher margins at Fiat auto mass market, EMEA and group level
- Full access to Chrysler's cash, without weakening the group's capital
structure in parallel
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Media Relations: Peter Fitzpatrick, London, Tel: +44 20 3530 1103, Email:
Additional information is available on www.fitchratings.com
Applicable criteria, 'Corporate Rating Methodology' dated 8 August 2012 is
available at www.fitchratings.com
Applicable Criteria and Related Research:
Corporate Rating Methodology: Including Short-Term Ratings and Parent and
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