Fiat CDS tightens on U.S. unit bond sale plans

LONDON Aug 11 (Reuters) - Debt protection costs on Italian carmaker Fiat (FIA.MI) fell on Tuesday after its U.S. subsidiary Case New Holland (CNH) (CNH.N) said it planned to sell a $1 billion high-yield bond.

The planned bond sale by the U.S. agricultural equipment maker is likely to ease its financial dependence on Fiat, analysts at independent research company CreditSights said.

"CNH has been leaning on Fiat's balance sheet for financial support, and that has weighed on Fiat's credit risk profile," said Brian Studioso, an analyst at CreditSights.

"A move by CNH to access the capital markets and reduce its dependence on Fiat would be a credit positive for Fiat."

Five-year credit default swaps on Fiat were about 12 basis points tighter at 446 basis points, Markit data showed.

The sale of senior notes due to mature in 2013, which will be guaranteed by CNH Global and other direct and indirect equipment subsidiaries, is expected to be completed in the next few days, CNH said in a statement late on Monday.

Credit rating agency Standard & Poor's has assigned a BB+ rating to the proposed new issue and said the proceeds of the sale would probably be used to repay debt.

Italian carmaker Fiat has a roughly 90 percent equity ownership stake in CNH, S&P said.

Fiat views CNH as a core business and provides liquidity support to CNH by way of intercompany loans and bank loan guarantees, S&P added.

CNH became dependent on Fiat as credit markets tightened and the asset-backed securities (ABS) market froze. Fiat drew down 3 billion euros ($4.25 billion) in credit lines to provide its subsidiary with financial support, CreditSights said.

As credit market conditions have improved, however, CNH has resumed access to the ABS markets as well as the U.S. government TALF programme.

"CNH is now looking to take advantage of the receptiveness in the bond market as well," said Studioso.

Although Fiat's liquidity has improved, it still faces a significant near-term maturity schedule, with 7.4 billion euros in debt coming due over an 18-month period from end-June 2009, including a 1.0 billion euro note due in February 2010, CreditSights said. (Reporting by Natalie Harrison; Editing by Rupert Winchester)