Deutsche convertible analysts stress no liquidity crisis at Fiat

By Ronda Fears

Nashville, Tenn., March 6 - Deutsche Banc Alex. Brown convertible analysts in a report Wednesday stressed that there is no short-term liquidity crisis at Fiat and that the commercial paper market is not important for Fiat. The note was issued on the heels of the group's report that noted a price depression in the Fiat Finance's 3.25% exchangeable due 2007, which converts into General Motors Corp. stock, to the GM convertibles and noted recent richening as an opportunity to sell.

The original report also outlined several facets of the Fiat/GM prospectus since a recent Moody's decision to place Fiat on review for possible downgrade had garnered investors' attention. Last week, Moody's placed the Baa2 long-term and Prime-2 short-term ratings of entities guaranteed by Fiat on review for possible downgrade, including Fiat Finance.

"We feel it is important to stress that we do not foresee a short-term liquidity crisis at Fiat," said Deutsche analysts Jeremy Howard and Jonathan Cohen in the report Wednesday.

Fiat has a significant asset base, parts of which could be disposed of to meet any short-term liquidity need. Fiat has also raised €4 billion in the last four months in different transactions, the analysts said. The analysts also noted that Fiat has an option to 'put' the remaining 80% of its car-making division to GM from January 2004.

The analysts said they believe the most accurate figure for Fiat's debt is the €33.4 billion total financial liabilities number given by the company in recent presentations. The rapid deterioration in credit default swap levels probably reflects as much a short-term supply/demand imbalance as a rational assessment of the credit worthiness of Fiat, the analysts said.

"In our original note we stated that another downgrade from Moody's would see Fiat have to exit the commercial paper market," Howard and Cohen said in the report.

"We understand that access to the commercial paper markets is not an important component of Fiat's capital structure, and therefore access to it has little or no bearing on the credit."

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