Moody's cuts Fiat ratings into junk
NEW YORK |
NEW YORK Feb 23 (Reuters) - Moody's Investors Service on Monday cut ratings on Italian carmaker Fiat SpA (FIA.MI) into speculative, or "junk" status and said the outlook for the company remains bleak.
The rating agency cut Fiat's long-term rating by one notch to "Ba1," the first level of junk. The outlook is negative, meaning Moody's could downgrade the rating again within two years.
The action "reflects the significantly negative free cash flow in FY2008 leading to a material deterioration in Fiat's financial flexibility with reported net industrial debt deterioration of 6.3 billion euros to 5.9 billion euros," analyst Falk Frey said in a statement.
Moody's is expecting the automotive market to remain weak in 2009 and sees little chance of a meaningful rebound in 2010.
"Against this background Moody's is of the opinion that operating profitability and cash flow generation will remain very weak in the intermediate term," said Frey.
The agency acknowledged the company's financial recovery of recent years and its diversified businesses and solid product offering.
It also recognized Fiat's strong position in the Italian and Brazilian markets, where it sells about two thirds of its cars.
The negative outlook reflects the company's reliance on the support of core banks to renew short-term credit lines and management's ability to release cash from working capital to bolster its financial position.
It also reflects concerns that the company will be able to scale back production in line with reduced demand.
Moody's is expecting car and light commercial vehicle demand to fall about 20 percent in the first quarter. It is also expecting volume and cash flow to improve in the next few quarters.
(Reporting by Ciara Linnane; Editing by Diane Craft)
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