TEXT-S&P raises Jaguar Land Rover rating to 'BB-'

June 29 - Overview
-- U.K.-based automaker Jaguar Land Rover PLC's (JLR) 2011-2012 results
were well above our expectations, supported by strong demand for premium cars.
-- Strong cash flow generation strengthened its credit metrics and should
support its ambitious investment plan.
-- We are raising our long-term rating on JLR to 'BB-' from 'B+'.
-- The positive outlook reflects our view of a more than one-in-three
possibility that JLR will maintain credit metrics above levels we consider
commensurate with the current rating.

Rating Action
On June 29, 2012, Standard & Poor's Ratings Services raised its long-term
corporate credit rating on U.K.-based automaker Jaguar Land Rover PLC (JLR) to
'BB-' from 'B+'. The outlook is positive.

At the same time, we raised our issue ratings to 'BB-' from 'B+' on JLR's GBP1
billion-equivalent senior unsecured notes and GBP500 million senior unsecured
notes. The recovery ratings on these notes are unchanged at '4', indicating
our expectation of average (30%-50%) recovery in the event of payment default.

Rationale
The upgrade reflects our upward revision of JLR's business risk profile to
"fair" from "weak" and its financial risk profile to "significant" from
"aggressive," as our criteria define these terms.

Our revised assessments were triggered by JLR's strong unit sales, increased
geographic diversification, and stable profitability through fiscal 2012
(ended March 31, 2012). Our revision of JLR's financial risk profile reflects
its strong credit metrics, owing to cash flow generation that was higher than
we anticipated, which should support the group's ambitious growth plans in our
view.

According to JLR's 2011/2012 preliminary reported results, the group
significantly outperformed our base-case expectations. While we anticipated a
decline in profitability margin owing to the introduction of new cars, the
company maintained its margin close to last year's level, despite a sharp
increase in investments. These positive results were supported by
exceptionally strong demand for premium cars in 2011/2012--particularly from
emerging markets--and the high level of consumer acceptance of Land Rover
products, notably the new Range Rover Evoque.

We believe that JLR's announced heavy investments will somewhat impair current
profitability and credit metrics. That said, we understand these investments
are needed to support the future growth of the Land Rover brand, allow the
repositioning of the Jaguar brand, and help with JLR's progress toward
emission reduction and compliance with CO2 regulation. In fiscal year 2013, we
expect a low-double-digit increase in unit sales. Growth should be supported
by strong interest for the new Range Rover Evoque and demand in China and
Russia, which should partly offset expected weak demand in some large European
countries. Over the same period, we anticipate a slight decrease in JLR's
reported EBITDA margin by a few percentage points compared with the previous
year, also thanks to the sharp increase in investments.

In fiscal 2012, JLR reported over GBP900 million of free cash flow, despite the
significant increase in investments. Based on the group's preliminary results,
we believe that the ratio of funds from operations (FFO) to debt should stand
in the low triple digits, higher than the 63% reported at fiscal year-end 2011
and well above the level consistent with the current rating. We understand
that the announced increase in investments will reach about GBP2 billion in
fiscal 2013 and in our view could continue to rise, resulting in negative cash
flow generation in fiscal 2014. We therefore anticipate that credit metrics
will weaken over the next two year, but believe FFO to debt will stay above
25%, which is the target for the current rating.

Our ratings on JLR also take into account our anticipation of ongoing business
and financial support from JLR's 100% owner, India-based Tata Motors Ltd.
(BB-/Stable/--). JLR represents a very large part of the Tata Motors group,
generating about 66% of its consolidated revenues and 70% of its consolidated
EBITDA in fiscal 2012. We believe that Tata Motors would provide additional
financial support to fund JLR's growth plan if needed, as it has done in the
past.
Liquidity
We assess JLR's liquidity as "adequate" according to our criteria, with
funding sources covering uses about 1.6x for the next 12 months. At the end of
March 2012, liquidity sources included:
-- Cash of about GBP2.4 billion, of which we estimate about GBP800 million
to
be restricted because of its location in jurisdictions where it might not be
immediately available, and because we assume a portion is needed for
operations.
-- About GBP776 million available under JLR's committed lines maturing in
more than 12 months, following the recent notes issue.

On the same date, funding needs included:
-- Short-term financial debt of GBP505 million (including GBP157 million of
preferred shares).
-- A potential cash burn for fiscal2013 according to our conservative
scenario, which we estimate at GBP200 million for the next 12 months.

The bond documentation includes a covenant that limits incurrence of debt
subject to interest coverage. By our estimates, covenant headroom is currently
well above 30%. The backup lines documentation also includes some covenants
and we estimate that in this case the headroom is significant.

Recovery analysis
JLR's GBP1 billion- equivalent senior unsecured notes due 2018 and 2021 and
GBP500
million senior unsecured notes due 2020 are rated 'BB-', in line with the
corporate credit rating. The recovery ratings on these notes remain unchanged
at '4', indicating our expectation of average (30%-50%) recovery prospects for
noteholders in the event of payment default.

Our recovery expectations for the unsecured notes are underpinned by JLR's
asset valuation, which we base, among other factors, on its iconic brand
names. Our recovery expectations are also supported by JLR's insolvency
jurisdiction of the U.K., which we consider to be relatively favorable for
creditors. At the same time, our recovery expectations are constrained by the
unsecured nature of the notes, which rank behind secured claims, including
significant pension claims. The unsecured notes are guaranteed by subsidiaries
representing about 87% of JLR's assets, 46% of its revenues, and 82% of its
EBITDA.

According to our recovery criteria, we determine recovery expectations by
simulating a hypothetical default scenario. In the case of JLR, we simulate a
hypothetical default in 2015, triggered by deterioration in JLR's operating
performance amid an economic and financial downturn. This would lead to a
steady decline in revenue, deteriorating profitability, and negative free cash
flow over the next three years. Given JLR's significant market positions, we
value the company as a going concern at the point of default, using a
combination of market multiple and discrete asset valuation methodologies. We
estimate that JLR's stressed enterprise value would be about GBP2.1 billion at
the point of hypothetical default in 2015.

We deduct from the stressed enterprise value priority liabilities of about
GBP500 million, comprising the pension deficit, capital leases, and enforcement
costs. The resulting net enterprise value is about GBP1.64 billion. From this,
we deduct approximately GBP642 million of secured debt, comprising:
-- An existing GBP116 million borrowing-base facility.
-- GBP159 million of other secured debt allowed under the documentation for
a GBP710 million revolving credit facility (RCF).
-- GBP318 million of factoring facilities, which we assume to be drawn by
the year of default.
-- Six months of prepetition interest.

The remaining value would, in our view, enable the unsecured lenders (of the
GBP1 billion-equivalent notes, the GBP500 million notes, and the GBP551 million
of
debt under the RCF) to achieve recovery of 30%-50%, resulting in a recovery
rating of '4'.

Outlook
The positive outlook reflects our view of a more than one-in-three possibility
of an upgrade over the next 12 months if JLR maintains FFO to debt well above
25%, our target for the current rating. This could happen if demand for
premium cars remains supportive--in line with our expectation--, the product
renewal of Land Rover and Jaguar is successful, the deterioration in profit
margin is minimal, and if cash burn is limited to about GBP200 million over
fiscal 2013.

We see a number of risks, however, that could jeopardize this positive
scenario, including a lack of success of the new product range or of the
repositioning of Jaguar, and adverse economic developments across JLR's
markets. We will monitor JLR's cash flow generation over the coming quarters.

We could revise the outlook to stable if JLR's operating performance falls
below our base-case expectations. This could occur if growth in emerging
markets weakens or in the event of a global recession. In addition, a lack of
success of the new product range or the repositioning of the Jaguar brand
could also negatively affect JLR's financial results. We could also revise the
outlook to stable if JLR fails to achieve revenue growth of at least 10% and
EBITDA margin of 12% in fiscal 2013.

Related Criteria And Research
-- 2008 Corporate Criteria: Ratios And Adjustments, April 15, 2008
-- 2008 Corporate Criteria: Analytical Methodology, April 15, 2008
-- Methodology And Assumptions: Liquidity Descriptors For Global
Corporate Issuers, Sept. 28, 2011

Ratings List
Upgraded
To From
Jaguar Land Rover PLC
Corporate Credit Rating BB-/Positive/-- B+/Positive/--

Jaguar Land Rover PLC
Senior Unsecured* BB- B+
Recovery Rating 4 4

*Guaranteed by: Land Rover Exports Ltd., Jaguar Cars Ltd., Jaguar Car Exports
Ltd., Jaguar Land Rover North America LLC and Land Rover.

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