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American Honda Finance CP Affirmed 'F1' By Fitch IBCA

14 September 1998

American Honda Finance CP Affirmed 'F1' By Fitch IBCA

    FITCH IBCA, N.Y., Sept. 11 -- American Honda Finance Corp.'s
(AHFC) 'F1' commercial paper rating is affirmed by Fitch IBCA.  AHFC's implied
senior debt rating remains 'A'.
    The company recently increased its commercial paper program size
to $2.5 billion from $2.1 billion in order to finance its receivables growth,
and maintains sufficient committed and uncommitted bank lines to provide 100%
backup for outstanding commercial paper.  AHFC's creditors benefit from
support agreements from its direct parent, American Honda Motor Co., Inc.
(AHM) and ultimate parent, Honda Motor Co., Ltd. (HMC).  Because of this
support, HMC's credit quality is the primary determinant of AHFC's rating,
although AHFC has a strong credit profile on a stand-alone basis.
    The affirmation reflects HMC's improved profitability, strong brand equity
and franchises, and solid market shares.  HMC's profits have strengthened on a
richer product mix, cost takeouts and a weaker yen, but the company has
demonstrated its ability to remain profitable even throughout intervals of
weak demand and adverse currency movements.
    Stronger cash flows and declining leverage in the auto company
continue to support improving credit protection measurements, with
consolidated EBITDA interest coverage a healthy 22 times (x) for the 12 months
ended June 30, 1998; at that date, consolidated debt/EBITDA was 2.47x, less
than half the peak level.  Leverage remains stable in Honda's finance
companies, in part helped by securitization.
    To advance automotive market positions and cash flows in a challenging
operating environment, Honda continues to introduce successful new products,
to lower structural and product costs, and to expand production in its key
markets.  HMC has been able to manage capital expenditures so as to live
within its cash flow, while launching successful new products into growth
segments of the markets.
    Concerns arise from the maturation of U.S. auto demand and the poor
outlook for Japanese and Asian auto markets.  Competition in all of Honda's
markets continues to be keen, exacerbated by chronic overcapacity.  These
factors continue to limit pricing flexibility, putting a premium on product
innovation, a lean cost structure, and capital efficiency.