DBRS Downgrades Chrysler to D

DBRS has today downgraded the ratings of Chrysler LLC (Chrysler or the Company), including Chrysler’s Issuer Rating to D from CC with a Negative trend.

The rating action follows the Company’s filing for Chapter 11 bankruptcy protection in the United States, (for the time being, the Canadian and Mexican subsidiaries have not been included in the filing).

Chrysler’s announcement comes today as the Company was unable to reach an agreement with 100% of its creditors regarding its $6.9 billion in secured debt that was proposed to have been reduced to approximately $2 billion. DBRS notes that although four banks that held the majority of the debt agreed to the proposed debt reduction, the opposition of a small number of lenders resulted in a breakdown in negotiations. Chrysler was attempting to meet the April 30, 2009, deadline imposed by the Obama administration for the Company to demonstrate itself as a viable automotive manufacturer going forward, and thereby qualifying for further funding assistance from the U.S. government.

DBRS notes that Chrysler recently was able to reach agreements with the United Auto Workers and the Canadian Auto Workers regarding further cost concessions that would render the Company’s labour costs more in line with those of the transplant auto manufacturers. Chrysler also today announced that it had entered into a global strategic alliance (the Alliance) with Fiat S.p.A. (Fiat), (subject to regulatory approval.) Under the Alliance, Fiat is to acquire an initial 20% equity interest in Chrysler in exchange for rights to various platforms and technologies primarily applicable to smaller more fuel-efficient vehicles.

DBRS notes that the Company can continue producing vehicles while under bankruptcy protection, although Chrysler has announced that it plans to idle most of its plants while in bankruptcy. The Obama administration has indicated that it will provide additional funding to Company in order to enable it to maintain operations through the bankruptcy. Furthermore, Chrysler vehicles sold in the United States and Canada will continue to have their warranties honoured by the United States and Canadian governments, respectively.

Furthermore, as Chrysler has reached agreements in principle on various concessions with the majority of its stakeholders, it is hoped that the Company will emerge out of bankruptcy in a relatively quick period, (i.e,. approximately 60 days). However, DBRS notes that there remain several uncertainties with respect to the bankruptcy process, and it is not inconceivable that Chrysler’s period under such protection could extend significantly further.

Note:
All figures are in U.S. dollars unless otherwise noted.

The applicable methodology is Rating Automotive, which can be found on our website under Methodologies.

This is a Corporate (Autos & Auto Parts) rating.