Bloomberg News

Fiat Downgraded By Moody’s on Chrysler Combination, Europe Loss

September 21, 2011

Sept. 21 (Bloomberg) -- Fiat SpA was downgraded by Moody’s Investors Service to Ba2 from Ba1 with a negative outlook on concern the combination with Chrysler Group LLC will leave the Italian carmaker responsible for Chrysler debt.

The integration “could result in the two companies having to support each other in the event of financial difficulty,” Moody’s, which rates Chrysler three notches lower, said today in a statement. Debt of about 8.3 billion euros ($11.3 billion) is affected by the downgrade, the rating company said. Fiat declined to comment.

Moody’s also cited Fiat’s business risks, including its “relatively infrequent model renewal rate, which is constraining the group’s competitive position” in Europe and Italy, and increased competition in Brazil.

Chief Executive Officer Sergio Marchionne, who runs both Fiat and Chrysler, is struggling to boost European sales as Fiat posts losses in its biggest market and continues to lose ground to competitors. The company’s market share in the region shrank to 5.8 percent in August from 6.8 percent a year earlier as deliveries fell 7.6 percent.

Marchionne said yesterday that Italy’s austerity measures will impact car sales in the country this year and next. Fiat targets “ultimate” break-even in Europe in 2014, he said.

Fiat fell as much as 19 cents, or 4.5 percent, to 4.12 euros and was trading down 3.7 percent at 4.15 euros as of 2:04 p.m in Milan, giving the company a market capitalization of 5.1 billion euros. The shares have lost 38 percent this year, compared with a decline of 25 percent in the Bloomberg European Auto Manufacturers Index.

No Share Sale

Marchionne, 59, last week ruled out any share sale for the time being for Chrysler or luxury brand Ferrari because of the market uncertainty. There’s no “urgency” to merge Fiat and Chrysler, Marchionne said. Fiat owns 53.5 percent of the American automaker and expects to get 58.5 percent by the end of the year.

Marchionne said earlier this week that the group “has enough liquidity to weather the storm.” The CEO said in June that the Italian carmaker won’t risk a credit-rating downgrade to gain full ownership of the American carmaker.

Fiat was placed under review for a possible downgrade by Moody’s and Fitch Ratings in April after the carmaker announced plans to raise its Chrysler stake. Standard & Poor’s lowered its long-term corporate credit rating on the carmaker to BB in February and confirmed its “negative outlook.” All of Fiat’s ratings are below investment grade.

-- Editors: Chad Thomas, David Risser

To contact the reporter on this story: Tommaso Ebhardt in Milan at tebhardt@bloomberg.net.

To contact the editor responsible for this story: Chad Thomas at cthomas16@bloomberg.net.


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