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BMW International Investment B.V. -- Moody's changes BMW's outlook to stable, affirms A2 ratings

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Rating Action: Moody's changes BMW's outlook to stable, affirms A2 ratingsGlobal Credit Research - 26 Mar 2021Frankfurt am Main, March 26, 2021 -- Moody's Investors Service ("Moody's") has today changed the outlook on the ratings of Bayerische Motoren Werke Aktiengesellschaft (BMW) to stable from negative. Concurrently, Moody's has affirmed all ratings of BMW and its subsidiaries, including BMW's long-term issuer rating of A2 and its short-term Prime-1 (P-1) commercial paper rating.A full list of affected ratings can be found at the end of this press release."The change in outlook reflects the continued recovery in global light vehicle sales, the expectation that BMW will be able to further improve is credit metrics in 2021, and the company's ability to comply with stricter CO2 emission targets in 2021." said Matthias Heck, a Moody's Vice President -- Senior Credit Officer and Lead Analyst for BMW. "The rating affirmation balances the company's strengths as well-established and leading global premium automotive manufacturer, with the overall challenges in the automotive industry, especially its high cyclicality and the trend towards electrification." added Mr. Heck.RATINGS RATIONALEThe outlook change to stable reflects Moody's expectation of a continued recovery in global light vehicle sales which Moody's expects to lead to an annual increase in global light vehicle sales of 7% in 2021 and 6% in 2022, despite short-term challenges in the first half of 2021, such as the delayed vaccination process in many countries and the shortage in semiconductor supply. On the back of this recovery, BMW should be able to improve Moody's adjusted EBITA margins towards 7% in 2021 (3.0% in 2020), maintain debt/EBITDA (Moody's adjusted) well below 1.5x (1.0x in 2020), and generate positive free cash flow (Moody's adjusted) also in 2021. The stabilization also reflects BMW's considerable reduction of its fleet CO2 emissions to below the stricter CO2 targets in the EU in 2020 (approximately 99 grams versus the regulatory limit of 104 grams), and the expectation of full compliance also in 2021.The rating affirmation reflects as positives BMW's (1) proven track record of successful launches of innovative products across vehicle segments, which have in the past lead to one of the highest and the most stable margins among global original equipment manufacturers, albeit these have been under pressure since 2018; (2) strong capital structure and conservative financial policy that should enable the company to weather future significant technological challenges; and (3) decent liquidity profile, with available cash sources covering expected cash needs for the next 12 months.At the same time, the ratings are constrained by (1) the cyclical nature of the industry in which the group operates with additional pressure due to the Coronavirus pandemic on top of already slowing global growth; (2) continued sales incentives; (3) higher raw material prices; (4) challenges resulting from Brexit; and (5) trade tensions between the Government of the United States and its main trading partners in Europe and China, which might, however improve somewhat under the new US administration. Moody's further recognises a number of challenges that the automotive industry is facing, in particular those related to connectivity, autonomous driving, alternative propulsion technologies, vehicle safety regulations, emissions and fuel economy as well as new market entrants. Moody's expects BMW and its peers to require ongoing sizeable investments over the coming years to weather these challenges.Moody's expects that the group's set up in China, where it has built significant local production, will be a key contributor to the recovery as this market returns to more normal levels. Moody's also expects a recovery of market volumes in Europe (+11%) and North America (+6%) in 2021. As a result of this recovery, Moody's expects that BMW will improve its EBITA margins (Moody's adjusted) towards 7% in 2021, which is the minimum for the A2. From 2022, Moody's expects a continued recovery in volumes and EBITA margins to at least 8%, which will position BMW comfortably in the A2 category. In terms of debt/EBITDA (Moody's adjusted), BMW has remained well in line with expectations for the A2 (1.0x in 2020, versus a maximum of 1.5x for the A2). With the expected recovery in margins, Moody's expects that BMW will even further improve its leverage metrics in 2021 and 2022.FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGSNegative pressure would build if BMW failed to return to meaningful operating profit generation in 2021. A prolonged and deeper slump in demand than currently anticipated leading to higher demand in liquidity, a more severe deterioration of its balance sheet and a longer path to restoring credit metrics in line with an A2 credit rating could also lead to negative pressure on the rating. Moody's would consider a downgrade if BMW's adjusted EBITA margin remained below 7%, debt/EBITDA exceeded 1.5x or the company failed to generate material positive free cash flows (Moody's-defined).A recovery in metrics to pre-outbreak levels could lead to positive rating pressure. More specifically an adjusted Debt/EBITDA of sustainably below 1x and an adjusted EBITA margin of sustainably above 8% could lead to upward rating pressure.LIST OF AFFECTED RATINGS:..Issuer: Bayerische Motoren Werke AktiengesellschaftAffirmations:.... LT Issuer Rating, Affirmed A2....Commercial Paper, Affirmed P-1....Senior Unsecured Medium-Term Note Program, Affirmed (P)A2....Other Short Term, Affirmed (P)P-1Outlook Actions:....Outlook, Changed To Stable From Negative..Issuer: BMW Australia Finance Ltd.Affirmations:....BACKED Senior Unsecured Medium-Term Note Program, Affirmed (P)A2....BACKED Other Short Term, Affirmed (P)P-1Outlook Actions:....Outlook, Changed To Stable From Negative..Issuer: BMW Canada Inc.Affirmations:....BACKED Senior Unsecured Regular Bond/Debenture, Affirmed A2Outlook Actions:....Outlook, Changed To Stable From Negative..Issuer: BMW Finance N.V.Affirmations:....BACKED Commercial Paper, Affirmed P-1....BACKED Senior Unsecured Medium-Term Note Program, Affirmed (P)A2....BACKED Other Short Term, Affirmed (P)P-1....BACKED Senior Unsecured Regular Bond/Debenture, Affirmed A2Outlook Actions:....Outlook, Changed To Stable From Negative..Issuer: BMW International Investment B.V.Affirmations:....BACKED Commercial Paper, Affirmed P-1....BACKED Senior Unsecured Medium-Term Note Program, Affirmed (P)A2....BACKED Other Short Term, Affirmed (P)P-1....BACKED Senior Unsecured Regular Bond/Debenture, Affirmed A2Outlook Actions:....Outlook, Changed To Stable From Negative..Issuer: BMW Japan Finance Corp.Affirmations:....BACKED Senior Unsecured Medium-Term Note Program, Affirmed (P)A2....BACKED Other Short Term, Affirmed (P)P-1....BACKED Senior Unsecured Regular Bond/Debenture, Affirmed A2Outlook Actions:....Outlook, Changed To Stable From Negative..Issuer: BMW US Capital, LLCAffirmations:....BACKED Commercial Paper, Affirmed P-1....BACKED Senior Unsecured Medium-Term Note Program, Affirmed (P)A2....BACKED Other Short Term, Affirmed (P)P-1....BACKED Senior Unsecured Regular Bond/Debenture, Affirmed A2Outlook Actions:....Outlook, Changed To Stable From NegativePRINCIPAL METHODOLOGYThe principal methodology used in these ratings was Automobile Manufacturer Industry published in June 2017 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1062773. Alternatively, please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.COMPANY PROFILEHeadquartered in Munich, Germany, Bayerische Motoren Werke Aktiengesellschaft (BMW) is a leading premium European car manufacturer, producing and selling the BMW, MINI and Rolls-Royce brands, as well as motorcycles. In addition, the company's financial services business offers leasing, retail and dealership financing and holds a bank license through its wholly owned subsidiaries, BMW Bank GmbH and BMW Bank of North America (bank deposits Aa3/Prime 1). In the year ending December 2020, the group generated revenue of around E99 billion.REGULATORY DISCLOSURESFor further specification of Moody's key rating assumptions and sensitivity analysis, see the sections Methodology Assumptions and Sensitivity to Assumptions in the disclosure form. Moody's Rating Symbols and Definitions can be found at: https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_79004.For ratings issued on a program, series, category/class of debt or security this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series, category/class of debt, security 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.The ratings have been disclosed to the rated entity or its designated agent(s) and issued with no amendment resulting from that disclosure.These ratings are solicited. Please refer to Moody's Policy for Designating and Assigning Unsolicited Credit Ratings available on its website www.moodys.com.Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.Moody's general principles for assessing environmental, social and governance (ESG) risks in our credit analysis can be found at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1243406.The Global Scale Credit Rating on this Credit Rating Announcement was issued by one of Moody's affiliates outside the UK and is endorsed by Moody's Investors Service Limited, One Canada Square, Canary Wharf, London E14 5FA under the law applicable to credit rating agencies in the UK. Further information on the UK endorsement status and on the Moody's office that issued the credit rating is available on www.moodys.com.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. Matthias Heck, CFA VP - Senior Credit Officer 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 Anke Rindermann Associate Managing Director 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 © 2021 Moody’s Corporation, Moody’s Investors Service, Inc., Moody’s Analytics, Inc. and/or their licensors and affiliates (collectively, “MOODY’S”). All rights reserved.CREDIT RATINGS ISSUED BY MOODY'S CREDIT RATINGS AFFILIATES ARE THEIR CURRENT OPINIONS OF THE RELATIVE FUTURE CREDIT RISK OF ENTITIES, CREDIT COMMITMENTS, OR DEBT OR DEBT-LIKE SECURITIES, AND MATERIALS, PRODUCTS, SERVICES AND INFORMATION PUBLISHED BY MOODY’S (COLLECTIVELY, “PUBLICATIONS”) MAY INCLUDE SUCH CURRENT OPINIONS. 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