Fitch: Fiat's Ratings Placed On Rating Watch Negative

    LONDON--May 3, 2002--Fitch Ratings has today placed Fiat SpA's ('Fiat') 'BBB' Senior Unsecured and 'F2' short-term ratings on Rating Watch Negative. At the same time, the 'F2' short-term rating for the US Commercial Paper programme of New Holland Credit Co, LLC, which is guaranteed by Fiat, was placed on Rating Watch Negative.
    The action reflects Fitch's concerns about Fiat's ability to materially improve the financial performance of the automotive division in the short term, while the group as a whole continues the restructuring announced in December 2001. Fiat is suffering from ongoing European market share erosion, especially in Italy, where it generates a high percentage of its revenues. Concerns remain as well about Fiat's ability to maintain its schedule of selling off a basket of assets, also announced in December 2001. It is believed that a successful sale would raise EUR2 billion in FY02 and EUR1bn in FY03, to halve indebtedness to EUR3bn. So far, properties were sold for EUR240 million in cash, while the sale of Magneti Marelli's ('MM') electronic systems unit has been announced for an estimated amount of c.EUR200mn.
    In the absence of satisfactory cash generation achieved by the core activities of the group, the current level of industrial indebtedness is substantially weakening credit protection measures. Total financial borrowings (excluding financial service debt) relative to FY01 EBITDA of EUR3.2bn represented a leverage of c.1.9x, up from 1.5x in FY00 and a net cash position in FYE98. As Fiat's three largest businesses -- including truck unit IVECO and the world's second largest manufacturer of agricultural and construction equipment, CNH Global N.V. -- will continue to operate in highly competitive markets that are undergoing structural changes and consolidation, the high interest expenses resulting from those debt levels are unlikely to be offset by stronger cash flow from other divisions. The group will therefore be forced to rely on a speedy execution of the disposals.
    Fitch will meet with management to discuss details of the restructuring initiatives underway, the progress in disposing off the non-core operations, as well as the outlook on cash generation of the group's future core divisions. The Rating Watch is expected to be resolved within the next few weeks following receipt of satisfactory information about these issues. Fitch envisages that in a downgrade scenario both the Short-term and Senior Unsecured ratings would be lowered by one notch.