Fiat's New Holland Credit LLC CP To `F2' From `F1'
17 March 2000
Fiat's New Holland Credit LLC CP To `F2' From `F1'
NEW YORK--March 17, 2000--New Holland Credit LLC's U.S. commercial paper rating is lowered to 'F2' from 'F1' by Fitch IBCA and removed from RatingAlert Negative where it was placed on May 17, 1999.The company's commercial paper is guaranteed by its ultimate parent, Fiat SpA.
Fitch IBCA also establishes ratings for Fiat SpA at 'F2' for short-term obligations and 'A-' for long-term obligations.
The ratings recognize the Fiat Group's meaningful progress in re-shaping and upgrading its business mix, as well as the challenges in significantly improving automotive profitability and strengthening its credit profile. The new alliance between General Motors Corp. and Fiat Auto, announced March 13, should advance Fiat's cost-competitiveness in Europe and Latin America, its largest automotive markets.
Three of Fiat's core businesses, autos, commercial vehicles, and agricultural and construction equipment (New Holland), operate in highly competitive markets undergoing structural change and consolidation. While New Holland has been among the most profitable of Fiat's operations, automotive returns have remained depressed relative to peers, and, though improving, are likely to lag peers over the near term. However, with cost takeouts anticipated from the alliance with GM, automotive returns should improve even in hyper-competitive markets.
Fiat has re-shaped many of its businesses into competitive leaders, through alliances, joint ventures, and strategic acquisitions, such as Case Corporation. Many of these acquisitions have been financed with debt, elevating the Group's leverage and weakening creditor protection. The Group exited 1999 with consolidated net borrowings of approximately Euros 4 billion, compared with net financial assets of Euros 1.42 billion at year-end 1998. The swing to a net debt position reflects the Group's borrowings for acquisitions, which totaled more than Euros 6 billion. The Group had consolidated EBITDA of Euros 3.1 billion in 1999, which included no contribution from CNH Global, whose results are consolidated effective Jan. 1, 2000. Even with a recovery in automotive profitability, the Group's credit profile will likely remain more consistent with the current ratings over the near term. The Group continues to evaluate acquisitions, such as Daewoo, to expand its global footprint or to enhance other business positions.
Fiat continues to upgrade its businesses to leading positions through product and market repositioning as well as through substantial ongoing cost reductions. With consistent capital and technical spending, the Group continues to introduce new products that have been well-received and supported market shares. Additionally, the core businesses continue to migrate their activities down the value chain into services, in order to build a base of more stable earnings through customer retention.
Fiat SpA, headquartered in Turin, Italy, is the legal parent company of the Fiat Group; one of the world's most diversified automakers. In addition to its core businesses noted above, the Group has related components operations, as well as aviation, rail equipment and publishing, and insurance operations. The Group owns a 71% interest in CNH Global NV, created from the combination of New Holland NV and Case Corporation.
The new alliance, with GM's investment in Fiat Auto valued at $2.4 billion, will make GM a 20% shareholder in Fiat Auto; Fiat in turn will own 5.1% of GM's $1 2/3 common shares. Although the alliance initially focuses on cost takeouts in purchasing, powertrains and sales finance infrastructures, Fiat has the right to put its 80% interest in Fiat Auto to GM at fair market value, and GM will have a right of first offer if Fiat decides to sell its interest. The two companies anticipate $1.2 billion of annual cost savings from higher combined volumes within three years; these could approach $2 billion annually if the partners commonized some components.