RPT-Fitch Scenario Analysis: Fiat's Purchase of Chrysler
(Repeat for additional subscribers)
Oct 3 (Reuters) - (The following statement was released by the rating agency)
Fitch Ratings has run a number of scenarios to assess the potential impact on Fiat Spa's (BB-/Negative Outlook) financial profile from the contemplated purchase of the remaining stake of Chrysler it does not own. These scenarios are described in a Comment published today on www.fitchratings.com "Fiat's Proposed Purchase of Chrysler: Scenario Analysis Highlights Risks for Financial Profile".
We believe that the negative effect on group's key credit metrics from higher debt will be manageable for the current ratings if the net impact of the purchase (gross price minus potential capital increase) remains below approximately EUR2.5bn. Conversely, the most unfavourable scenario for Fiat, of disbursing more than USD5bn to complete the purchase of Chrysler, could have a negative rating impact if financed only by debt.
Our view is also based on the assumption that Fiat will be able to merge with Chrysler and then refinance Chrysler's debt, which is a precondition to fully accessing its cash. Ultimately, Fiat's ratings will reflect the group's ability, or lack of, to access Chrysler's cash and cash flows without restriction. The alternative scenario of a Chrysler IPO could lead to a downgrade as it could complicate overall group corporate governance and management, in particular because of a fragmented shareholding structure, and lengthen the refinancing process of Chrysler's debt. However, we believe that an IPO may still be avoided and that a private deal with Chrysler's other shareholder, the UAW retiree health care trust fund (VEBA) can be reached.
Link to Fitch Ratings' Report: Fiatâ€™s Proposed Purchase of Chrysler: Scenario Analysis Highlights Risks for Financial Profile
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