Standard & Poor's Assigns DaimlerChrysler Corporate Credit Ratings
17 November 1998
Standard & Poor's Assigns DaimlerChrysler 'A+/A-1' Corporate Credit Ratings
LONDON, Nov. 17 -- Standard & Poor's today assigned its
single-'A'-plus/'A-1' corporate credit ratings to the newly formed
DaimlerChrysler AG, following the successful completion of a mergerbetween
Daimler-Benz AG and Chrysler Corp. The outlook is stable.
At the same time, Standard & Poor's affirmed its outstanding ratings on
Chrysler, Daimler-Benz, and related entities (see list below).
The ratings on DaimlerChrysler AG and related entities reflect the
companies' leading business positions in light vehicle market segments such as
luxury passenger cars, minivans, and sport utility vehicles, which offer
relatively high margins compared with the other market segments. With the
merger, the less profitable nonautomotive manufacturing businesses account for
only about 15% of consolidated sales.
The ratings also reflect broad geographical diversification, with the
majority of sales originating in North America and Western Europe. Because
demand cycles in these two regions generally do not move in unison, such a
regional mix is expected to lead to greater protection against the industry's
inherent cyclicality.
Although the brands of the two companies will be kept separate, the
gradual integration of their automotive operations is nonetheless expected to
provide meaningful financial benefits, including:
-- Savings from a pooled higher annual purchase volume for raw
materials,advertising, and other items;
-- Additional revenue enhancement, particularly from higher sales of
Chrysler products in Asia through the existing Daimler dealer network
once these markets regain momentum; and
-- Savings from combined component development and harmonization,
which could materialize once jointly developed models are
introduced.
Standard & Poor's believes that DaimlerChrysler's management will face
considerable challenges in order to fully realize potential benefits. The
rating assessment does not take for granted that these challenges will be
overcome in a short time frame, but rather over the medium term.
Both companies have cash significantly in excess of debt (excluding
finance operations, although these are conservatively leveraged). Standard &
Poor's expects the new entity to preserve a high degree of balance sheet
strength, through which cyclicality can be cushioned.
The absence of a guarantee by DaimlerChrysler AG of the outstanding group
debt does not result in a different assessment of the credit quality of this
debt, as Standard & Poor's views Chrysler Corp., Chrysler Financial Corp.,
Daimler-Benz AG and DaimlerChrysler AG as one single economic entity.
OUTLOOK: STABLE
The intense competitiveness and cyclical characteristics of the auto
industry, and the challenges of smooth integration between Chrysler and
Daimler-Benz constrain the ratings upgrade potential during the next few
years. Management has stated its intent to maintain its investments in all
business areas of DaimlerChrysler. However, further reorganization of the
business portfolio could, in light of the expected consolidation of the
European aerospace and defense industry, materialize in time. Such
developments remain uncertain, in light of political factors, but would not
likely have a material impact on DaimlerChrysler's credit profile, Standard &
Poor's said. -- CreditWire
OUTSTANDING RATINGS AFFIRMED Rating
Chrysler Corp.
Corporate credit rating A+
Bank loan rating A+
Senior unsecured debt A+
Chrysler Financial Co. L.L.C.*
Corporate credit ratings A+/A-1
Bank loan rating
A+Senior unsecured debt A+
Commercial paper A-1
Daimler-Benz AG
Corporate credit rating A+/A-1
Senior unsecured debt A+
Commercial Paper A-1
Auburn Hills Trust
Senior unsecured debt (Gtd: Chrysler Corp.) A+
*Formerly known as Chrysler Financial Corp.