DBRS Morningstar Assigns Issuer Rating of “A” With a Stable Trend to Mercedes-Benz International Finance B.V.

DBRS Limited (DBRS Morningstar) assigned an Issuer Rating of “A” with a Stable trend to Mercedes-Benz International Finance B.V. (MBIF). Mercedes-Benz Group AG (Mercedes or the Company) provides a parent guarantee in support of MBIF’s senior debt (Medium-Term Notes). This guarantee, as well as DBRS Morningstar’s assessment of additional implicit support considerations (including but not limited to business, reputational, and financial factors that are likely to motivate a parent or affiliated company to support its subsidiary issuer), result in a flow-through of Mercedes’ Issuer Rating to MBIF.

Given the flow-through of Mercedes’ credit rating to MBIF, any change in the credit rating of Mercedes would directly result in a corresponding (i.e., 1-to-1 relationship) change in the credit rating of MBIF. Consistent with the Stable trend, DBRS Morningstar expects the credit rating to remain constant amid Mercedes’ ongoing strong cash flow generation. While somewhat unlikely given the cushion afforded by the Company’s Financial Risk Assessment, significantly weaker earnings amid ongoing high investments tied to the progressive electrification of Mercedes’ automotive fleet—resulting in material negative free cash flow and thereby adversely affecting credit metrics—could have negative credit rating implications. Conversely, an upgrade is also unlikely over a similar time horizon in line with the sizable cost and investment challenges facing the industry.

ENVIRONMENTAL, SOCIAL, AND GOVERNANCE CONSIDERATIONS
Environmental (E) Factors
DBRS Morningstar considered that the E factor, specifically carbon and greenhouse gas costs, represents a relevant factor as Mercedes is subject to a wide range of environmental compliance requirements relating to carbon dioxide (CO2), fuel efficiency, emissions control, and other factors. In the event that the Company would not comply with applicable regulations, significant penalties and reputational harm could result. Correspondingly, the Company announced its Ambition 2039 initiative, which targets CO2-neutrality of Mercedes vehicles across their lifecycles. This includes climate neutrality among the Company’s supply base, CO2-neutral production across its global production facilities, as well as the CO2-neutrality of Mercedes vehicles during the utilization phase. The expected costs of compliance with global environmental regulations and Mercedes’ Ambition 2039 initiative are sizable.

While the E factor could have some negative credit impact, DBRS Morningstar does not deem it sufficient to change the credit ratings or the trends assigned to Mercedes.

There were no Social or Governance factors that had a significant or relevant effect on the credit analysis.

A description of how DBRS Morningstar considers ESG factors within the DBRS Morningstar analytical framework can be found in the DBRS Morningstar Criteria: Approach to Environmental, Social, and Governance Risk Factors in Credit Ratings at https://www.dbrsmorningstar.com/research/416784 (July 4, 2023).

Notes:
All figures are in euros unless otherwise noted.

DBRS Morningstar applied the following principal methodology:
-- DBRS Morningstar Global Criteria: Guarantees and Other Forms of Support (March 28, 2023; https://www.dbrsmorningstar.com/research/411694)

The credit rating methodologies used in the analysis of this transaction can be found at: https://www.dbrsmorningstar.com/about/methodologies.

A description of how DBRS Morningstar analyzes corporate finance transactions and how the methodologies are collectively applied can be found at: https://www.dbrsmorningstar.com/research/397223.

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 [email protected].

The credit rating was not initiated at the request of the rated entity.

The rated entity or its related entities did not participate in the credit rating process for this credit rating action.

DBRS Morningstar did not have access to the accounts, management, and other relevant internal documents of the rated entity or its related entities in connection with this credit rating action.

This is an unsolicited credit rating.

This credit rating is endorsed by DBRS Ratings Limited for use in the United Kingdom, and by DBRS Ratings GmbH for use in the European Union, respectively. The following additional regulatory disclosures apply to endorsed credit ratings:

This credit rating concerns a newly assigned Issuer Rating on this entity.

With respect to the Financial Conduct Authority (FCA) and European Securities and Markets Authority (ESMA) regulations in the United Kingdom and European Union, respectively, this is an unsolicited credit rating. This credit rating was not initiated at the request of the issuer.

With Rated Entity or Related Third-Party Participation: NO
With Access to Internal Documents: NO
With Access to Management: NO

The conditions that lead to the assignment of a Negative or Positive trend are generally resolved within a 12-month period. DBRS Morningstar trends and credit ratings are under regular surveillance.

For further information on DBRS Morningstar historical default rates published by the ESMA in a central repository, see: https://registers.esma.europa.eu/cerep-publication. For further information on DBRS Morningstar historical default rates published by the FCA in a central repository, see https://data.fca.org.uk/#/ceres/craStats.

Lead Analyst: Robert Streda, Senior Vice President, Diversified Industries
Credit Rating Committee Chair: Timothy O’Brien, Managing Director, Diversified Industries
Initial Credit Rating Dates:
Mercedes – August 29, 2000
MBIF – November 16, 2023

Information regarding DBRS Morningstar credit ratings, including definitions, policies, and methodologies, is available on www.dbrsmorningstar.com or contact us at [email protected].

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