DBRS Downgrades Ratings of Nissan Motor Co., Ltd. to A (low) from “A,” Changes Trend to Negative

DBRS Limited (DBRS) downgraded the Issuer Rating and Senior Unsecured Debt rating of Nissan Motor Co., Ltd. (Nissan or the Company) as well as the Senior Unsecured Debt rating of its subsidiary, Nissan Canada Inc. (NCI), to A (low) from “A.” DBRS also confirmed the Commercial Paper rating of NCI at R-1 (low) (the rating remains consistent with the current mapping relationship between DBRS’s long-term debt and short-term debt rating scales) and changed the trends on all ratings to Negative from Stable. These rating actions incorporate concerns raised by DBRS in its commentary following Nissan’s Q1 results for F2019 (ending March 31, 2020). (For further details, please refer to DBRS’s press release dated July 29, 2019, titled “DBRS Comments on Nissan Motor Co., Ltd.’s Q1 F2019 Results and Announced Restructuring”.)

DBRS’s subsequent review and long-term ratings downgrades reflect a downward revision of the Company’s business risk assessment, specifically with respect to Nissan’s operating efficiency given continually weakening margins, ongoing uncertainties regarding the Renault-Nissan-Mitsubishi Alliance (the Alliance) and current excess production capacity. Additionally, the Company’s declining earnings have led to a slight softening of Nissan’s financial risk assessment. DBRS notes, however, that the Company’s credit metrics remain solid (partly reflecting its conservative financial policy) with automotive operations maintaining a sizeable net cash position (i.e., cash and marketable securities exceeding debt levels).

The Company’s lower earnings are a function of softer volumes amid rising costs and investment requirements (in line with tightening emissions regulations, alternative powertrain/electric vehicle development and new mobility business initiatives) that are confronting all automotive original equipment manufacturers. However, Nissan’s weaker results also reflect significant challenges in North America, primarily the United States, where the Company’s prior growth was considerably a function of higher fleet volumes and sales incentives. While Nissan is attempting to refocus its efforts in the United States toward firmer retail sales, reduced incentives and associated increases in brand value and margins, a successful turnaround in this market now appears considerably more challenging than previously anticipated by DBRS.

DBRS acknowledges that the sudden ousting of Nissan’s former chairman late last year served to highlight previous executive misconduct that was facilitated by corporate governance shortcomings. While subsequent measures taken by the Company (including the formation of a special committee and the subsequent implementation of a new corporate governance structure consisting of a board of directors and three statutory committees, each largely represented by outside directors) have been meaningful, DBRS notes that Nissan’s ongoing corporate governance challenges (including the forthcoming departure of its chief executive) result in a modestly negative factor affecting the ratings.

Consistent with the Negative trend and recognizing the above-cited industry headwinds that are expected to persist over the medium term, DBRS notes that a further deterioration in the Company’s operating performance could lead to an additional ratings downgrade. However, should Nissan’s earnings progressively improve from current weak levels and/or the Company’s corporate governance issues be substantially resolved, DBRS would likely change the trend on the ratings to Stable. Finally, DBRS notes that various potential events, including, among others, a material change in the ownership composition of the Company and/or a meaningful unwinding of the Alliance, could trigger an event-driven review of Nissan’s ratings.
 
Notes:
All figures are in Japanese yen unless otherwise noted.

The principal methodologies are Rating Companies in the Automotive Manufacturing and Supplier Industries (October 2018), DBRS Criteria: Guarantees and Other Forms of Support (January 2019) and DBRS Criteria: Commercial Paper Liquidity Support for Non-Bank Issuers (March 2019), which can be found on dbrs.com under Methodologies & Criteria.

The related regulatory disclosures pursuant to the National Instrument 25-101 Designated Rating Organizations are hereby incorporated by reference and can be found by clicking on the link under Related Documents or by contacting us at info@dbrs.com.

The rated entity or its related entities did participate in the rating process for this rating action. DBRS had access to the accounts and other relevant internal documents of the rated entity or its related entities in connection with this rating action.

DBRS will publish a full report shortly that will provide addi¬tional analytical detail on this rating action. If you are interested in receiving this report, contact us at info@dbrs.com.

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