DBRS Comments on Magna’s Potential Agreement with Opel

DBRS notes that Magna International Inc. (Magna or the Company) has reached a conceptual framework (the Framework) with General Motors Corporation (GM) regarding its investment in the GM subsidiary Adam Opel GmbH (Opel). The Framework at this point remains non-binding and has no immediate impact on Magna’s ratings, which were placed Under Review with Negative Implications on May 1, 2009, following the announcement from Chrysler LLC (Chrysler) that it had filed for bankruptcy protection in the United States. DBRS notes that Magna will perform due diligence on Opel prior to negotiating a final transaction with GM.

DBRS notes that shares in Opel are to be transferred to a trust to protect it from the insolvency of GM, which yesterday filed for bankruptcy protection in the United States.

At this stage, DBRS notes that it remains too early to assess any ratings impact of Magna’s involvement in Opel as the Company continues to perform its due diligence, with several details of the finalized agreement remaining to be resolved. Magna’s potential investment in Opel could increase the Company’s product and geographic diversification. DBRS also notes that Magna has attempted to constrain the financial risk associated with its potential investment in Opel. This is critical as automotive manufacturers and suppliers worldwide attempt to preserve their liquidity position amid the global financial crisis and sharply lower industry volumes across most major automotive markets.

Under the Framework, Magna, along with Sberbank (Russia’s largest savings bank), is contemplating an investment of up to EUR 700 million for a 55% stake in Opel. GM is to retain a 35% interest in Opel, with Opel employees obtaining the residual 10% position. EUR 300 million in emergency funding will also be provided for Opel’s immediate funding needs by German state banks. The German government and four state governments where Opel has operations have also agreed to provide a EUR 1.5 billion bridge loan. DBRS notes that Magna has no problems in funding its share of the investment.

DBRS notes that an increased offensive on the Russian automotive market is deemed to be one of the objectives of Magna’s involvement with Opel. However, DBRS further observes that an increased foray into the Russian market is not without risk. While the Russian market has experienced rapid growth in the past several years and was on pace to become Europe’s largest automotive market, DBRS notes that sales have fallen dramatically in 2009 in response to a lack of credit and low consumer confidence. In April 2009, automotive sales in Russia were down 53% year over year.

Magna’s ratings remain Under Review with Negative Implications. Further rating actions will primarily depend on the outcome of the Chrysler and GM bankruptcy restructurings and their associated impact on production volumes. DBRS will also reassess Magna’s ratings in the event that its possible investment in Opel becomes final; however, DBRS expects that this would not result in an immediate ratings action.

Notes:
All figures are in euros unless otherwise noted.

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

This is a Corporate rating.