DBRS Places Fiat Under Review with Negative Implications

DBRS has today placed the Senior Unsecured Debt ratings of Fiat S.p.A. and Fiat Finance Canada Ltd. (collectively, Fiat or the Company) Under Review with Negative Implications. The ratings action follows the Company’s recent announcement that its Board of Directors had approved a partial and proportional demerger (the Demerger) whereby Fiat intends to transfer to a newly incorporated company, Fiat Industrial S.p.A. (Fiat Industrial), certain assets (mainly shareholdings) in the truck, industrial and marine powertrain, agricultural and construction equipment businesses, as well as liabilities (including financial debt). As a result of the Demerger, these businesses will be separated from the residual automotive business and related components (New Fiat), which include Fiat Group Automobiles, Ferrari, Maserati, Magneti Marelli, Teksid, Comau and FPT Powertrain Technologies.

Strategic objectives of the Demerger include increased autonomy and higher efficiencies with the aim of accelerating the growth of both Fiat Industrial and New Fiat. However, DBRS notes that the Demerger would appear to result in reduced business diversification of New Fiat relative to that of the current Company, with volatility in operating performance increasing, thereby adversely affecting the business risk profile. DBRS notes that this could potentially be offset by a stronger financial profile. While specific details regarding the respective allocation of debt to Fiat Industrial and New Fiat remain to be resolved, DBRS observes that if the eventual financial profile of New Fiat proves to be similar to the Company’s current profile, a rating downgrade would likely result.

DBRS expects the Under Review – Negative status to be resolved within the next few months. A shareholders’ meeting is expected to take place on September 16, 2010. The completion of the Demerger remains subject to shareholder consent as well as other regulatory approvals.

Notes:
Fiat S.p.a. of Italy, the parent company for the Fiat Group, unconditionally guarantees Fiat Finance Canada Ltd. debt.

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

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