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Rating Action: Moody's assigns a Baa3 issuer rating to FCA (Stellantis), outlook stable
Global Credit Research - 11 Jan 2021
Frankfurt am Main, January 11, 2021 -- Moody's Investors Service ("Moody's") has today assigned a Baa3 issuer rating to Fiat Chrysler Automobiles N.V. (FCA), which will be renamed to Stellantis N.V. (Stellantis). Concurrently, Moody's has upgraded the senior unsecured ratings of FCA and its subsidiary Fiat Chrysler Finance Europe SA to Baa3 from Ba2. Moody's has also upgraded the short-term ratings of FCA and Fiat Chrysler Finance Europe SA to (P)P-3 from (P)NP. The outlook on both entities changed to stable from developing.
Moody's has also changed the outlook on the ratings of Peugeot S.A. (PSA) and its subsidiaries to stable from negative. Concurrently, Moody's has affirmed all ratings of PSA and its subsidiaries, including the issuer rating and backed senior unsecured ratings of PSA, where Stellantis will become the obligor, and of GIE PSA Tresorerie at Baa3. Following the merger to form Stellantis, Moody's will withdraw Peugeot S.A. (PSA)'s issuer rating and MTN program rating.
A full list of rating actions is shown at the end of this press release.
"The assigned Baa3 issuer rating on FCA reflects the expected closing of the merger between FCA and PSA to create Stellantis, a larger and more diversified entity with significant synergy potential.", said Matthias Heck, a Moody's Vice President -- Senior Credit Officer and Lead Analyst for FCA, PSA and Stellantis. "In our scenario of gradually recovering global light vehicle sales, Stellantis should be able to swiftly improve margins and de-lever to levels, required for the Baa3, while maintaining strong liquidity and being able to spend sizeable investments into carbon transition and autonomous driving technologies.", added Mr. Heck.
On January 04, 2021, the shareholders of FCA and PSA approved the merger of both entities to create Stellantis. Following the shareholder approvals and receipt of final regulatory approvals, the merger is expected to be completed on January 16, 2021. Upon completion, PSA will be merged into FCA, and FCA will be renamed Stellantis.
The assignment of the Baa3 issuer rating to FCA reflects the expected closing of the merger to create Stellantis. Stellantis combines FCA and PSA, which will rank among the largest global automotive manufacturers by volume and have larger scale, product, brand and regional diversification, as well as technology competence, than the previous separate entities. It also reflects the high synergy potential resulting from the merger, which is expected to support gradual margin improvements.
The senior unsecured ratings of FCA, where Stellantis will become the obligor, and of Fiat Chrysler Finance Europe S.A., are upgraded to Baa3, in line with the issuer rating. After the merger, these bonds will be structurally subordinated relatively to sizeable financial obligations at the operating companies and the senior unsecured notes originally issued by PSA, which continue to benefit from a guarantee of GIE PSA Tresorerie. With regards to the PSA bonds, these guarantees were implemented for historical reasons and Moody's considers these notes as legacy debt, which will disappear over time or upon maturity of the notes at the latest.
The other short term rating of FCA and the backed short-term rating of Fiat Chrysler Finance Europe S.A are upgraded to (P)P-3, from (P)NP. This aligns the short-term ratings with the Baa3 issuer rating and reflects the strong liquidity of Stellantis.
The stable outlook on all ratings reflects the expectation that the combined entity will achieve operating profit margins (Moody's adjusted EBITA) well within the range of 4% - 6% in 2021 already, and improve towards the high end of this range in 2022. It also reflects the expectation that debt/EBITDA (Moody's adjusted) will decline into the range of 2.0x -- 3.0x in 2021 and improve further within this range in 2022.
The Baa3 issuer rating is supported by (1) the company's strong and further improved credit metrics following the merger between FCA and PSA; (2) the group's scale, ranking among the world's largest automotive manufacturers; (3) its degree of geographic diversity, including a large and balanced exposure to its two main markets of North America and Europe; (4) expected margin improvements due to the realization of sizeable merger synergies and a track record of price and cost discipline; (5) the group's strong liquidity profile.
The Baa3 issuer rating is constrained by (1) the highly competitive nature of the automotive industry, especially in Europe, which weighs on growth and pricing activity; (2) the group's high reliance on the mature North American and European market, with very little exposure to growth markets, especially China, leading to a higher cyclicality compared to other Auto OEMs with a broader geographic portfolio; (3) challenges to integrate FCA and PSA and realize synergies, which will be a complex and time-consuming process; (4) substantial recurring structuring expenses resulting from the merger between FCA and PSA as well as the continued integration of Opel/Vauxhall and PCD; (5) transition risk of the industry towards alternative fuel vehicles and autonomous driving technologies.
Moody's considers the liquidity profile to be excellent. At the end of September 2020, FCA reported approximately E26 billion of cash, cash equivalents and current debt securities, PSA reported approximately E16 billion at the end of August 2020. At the closing of the merger in early January 2021, including cash generated during the remainder of 2020 and after the payment of extraordinary dividends, Moody's expects cash and cash equivalents of around E40 billion for Stellantis.
Moody's expects the full availability of FCA's E6.3 billion committed revolving credit facilities (RCFs). The E3.1 billion tranche A of the RCF will be maturing in April 2023, the other E3.1 billion tranche B matures in March 2024. Moody's understands that PSA's committed covenanted syndicated credit facilities of E3.0 billion are also available to Stellantis. The majority of these facilities are maturing in May 2025.
These funding sources, totaling to almost E50 billion, should comfortably cover Stellantis's anticipated cash requirements over the next 12 months, which comprise principally capex, debt maturities, and cash for day-to-day needs.
FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS
Qualitatively, upward pressure on the Baa3 issuer rating could materialize if the company was able to swiftly manage the integration process of FCA and PSA, whilst being able to maintain its strong market positions in North America and Europe and enhance its geographical diversification beyond both regions. An upgrade would also require a continued roll-out of electrified models, especially at the FCA brands, in the context of tighter emission regulation within Stellantis' core markets and stable to slightly growing market share.
Quantitatively, an upgrade would require Stellantis to achieve (i) Moody's-adjusted EBITA margin (after restructuring cost) sustainably in the mid- to high single-digits in percentage terms, and (ii) Moody's-adjusted (gross) debt/EBITDA sustainably below 2.5x, and (iii) consistently positive and robust free cash flow above E1.0 billion annually.
The issuer rating could be downgraded if (i) Moody's adjusted EBITA margin (after restructuring) remained below 4%, or Moody's-adjusted debt/EBITDA remained above 3.5x, or (ii) free cash flow remained negative, or (iii) its liquidity profile were to weaken. Moreover, a sustained decline in Stellantis' market share would put pressure on the rating.
LIST OF AFFECTED RATINGS:
..Issuer: Fiat Chrysler Automobiles N.V.
.... LT Issuer Rating, Assigned Baa3
....Other Short Term, Upgraded to (P)P-3 from (P)NP
....Senior Unsecured Medium-Term Note Program, Upgraded to (P)Baa3 from (P)Ba2
....Senior Unsecured Regular Bond/Debenture, Upgraded to Baa3 from Ba2
.... LT Corporate Family Rating, Withdrawn , previously rated Ba1
.... Probability of Default Rating, Withdrawn , previously rated Ba1-PD
....Outlook, Changed To Stable From Developing
..Issuer: Fiat Chrysler Finance Europe SA
....BACKED Other Short Term, Upgraded to (P)P-3 from (P)NP
....BACKED Senior Unsecured Medium-Term Note Program, Upgraded to (P)Baa3 from (P)Ba2
....BACKED Senior Unsecured Regular Bond/Debenture, Upgraded to Baa3 from Ba2
....Outlook, Changed To Stable From Developing
..Issuer: GIE PSA Tresorerie
....Commercial Paper, Affirmed P-3
....BACKED Senior Unsecured Regular Bond/Debenture, Affirmed Baa3
....Outlook, Changed To Stable From Negative
..Issuer: Peugeot S.A.
.... LT Issuer Rating, Affirmed Baa3
....BACKED Senior Unsecured Medium-Term Note Program, Affirmed (P)Baa3
....BACKED Senior Unsecured Regular Bond/Debenture, Affirmed Baa3
....Outlook, Changed To Stable From Negative
The 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.
The merger of FCA and PSA is expected to be completed on 16 January 2021 to create Stellantis. Having its corporate seat in Amsterdam, the Netherlands, Stellantis will rank among the world's largest automotive manufacturers by volume. Its portfolio of automotive brands includes Alfa Romeo, Chrysler, Dodge, Fiat, Fiat Professional, Jeep, Lancia, Ram and Maserati as well as Peugeot, Citroen, Opel, Vauxhall and DS Automobiles. In 2019 Stellantis sold 8.1 million units (including JV's) and on an unaudited pro forma basis it generated consolidated net revenues of E167 billion and operating profits of E9.6 billion (unaudited pro forma condensed figures as presented in the Prospectus filed on Nov 20, 2020).
For 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
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