DBRS confirms Fiat Finance Canada Ltd. at R-1 (low)

Fiat Finance Canada Ltd. - Confirms at R-1 (low)

June 26, 2001

Kam Hon / David Schroeder
(416) 593-5577 x243/x232
e-mail: khon@dbrs.com <mailto:khon@dbrs.com>


DBRS is confirming the commercial paper program of Fiat Finance Canada
Ltd., based on its parent and guarantor, Fiat S.p.A. ("Fiat" or "the
Company") at R-1 (low) with a Stable trend. The confirmation reflects
that the Company's financial position is still manageable, albeit
aggressive, for the rating. The Company has ample liquidity to meet its
operating needs, and it is actively divesting non-core assets to raise
cash to strengthen the balance sheet.

Fiat's financial position weakened in 2000 impacted by the depressed
results in the equipment operations and high cash usage. Consolidating
the weak results of Case Corporation for the first time in 2000
contributed to the deterioration. Although cash flow from operations
actually strengthened as most operating businesses reported improved
results, it was not sufficient to fund acquisitions and capital
expenditures leading to a large deficit in free cash and a rise in debt
levels. The Company's leverage is aggressive for the rating but is still
manageable. However, the Company continues to have ample liquidity to
fund operating needs, and it also owns 32 million General Motors shares
(about EUR2.2 billion at current prices), which could easily be
monetized to raise cash, if necessary, adding to liquidity. The Company
is committed to reduce its debt level expeditiously and has implemented
a number of initiatives to boost free cash flow including keeping
capital expenditures at below depreciation levels and reducing working
capital. Furthermore, the Company is actively divesting non-core assets
to raise cash for debt reduction. Near term, new model introduction and
ongoing benefits from restructuring efforts should support gradual
improvement in operating results although softening market conditions in
auto and commercial vehicles would impede progress. While DBRS expects
the Company's financial position to strengthen progressively, meaningful
improvement is unlikely until operating performance in the auto and
equipment businesses has fully recovered.


Dominion Bond Rating Service Limited (DBRS) will publish a full report
shortly that will provide additional analytical detail on this rating
action. If you are interested in purchasing this report, please contact
us at: info@dbrs.com 

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