Moody's confirms Fiat Finance at Baa2, revises outlook to negative

Moody's Investors Service on Friday confirmed the Baa2 long-term and Prime-2 short-term ratings of entities guaranteed by Fiat SpA, including Fiat Finance Luxembourg SA, but changed the outlook to negative from stable. The rating action follows Fiat's announcement that its insurance subsidiary, Toro Assicurazoni SpA, has made a formal offer to purchase the 24.3% interest that Montedison SpA holds in Fondiaria SpA, an Italian-based insurance company. Toro intends to fund the transaction through the sale of about €180 million in liquid investment securities and the disposal of other insurance assets. These asset sales will be in addition to those previously announced as part of the Fiat Group 2002 asset disposal plan.

The negative outlook acknowledges the constructive nature of debt reduction initiatives at Fiat, Moody's said, but also reflects the need for the company to make timely and significant progress in completing planned asset sales and reducing debt. The outlook also reflects Fiat's limited capacity to accommodate additional operating stress at the current rating level. Such stress could arise from an erosion of the company's market position or an escalation of the severity of the downturn in its key industrial market. Delays in the timetable for reducing debt through asset dispositions, or further erosion in the company's operating environment could result in the Baa2 long-term and Prime-2 short-term ratings of Fiat-guaranteed entities being placed on review for possible downgrade. Such an action would also result in a review of the Ba2 rating of CNH, Fiat's farm and construction equipment subsidiary whose rating outlook is also negative.

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