Standard & Poor’s cut Fiat’s long-term debt rating to BB+, the highest junk rating, and warned that a further downgrade was possible, just as Fiat boss Sergio Marchionne was travelling to Detroit for talks on the possible alliance with Chrysler.
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The decision, which will make borrowing more expensive for the group, was due to “Fiat’s weak liquidity position if you consider the debts maturing in 2009 and 2010,” S&P analyst Barbara Castellano told Agence France-Presse (AFP).
“Fiat does not have enough financial resources in the form of credit lines … to fully meet its deadlines in the next 12 months,” she said.
Fiat’s domestic sales fell 20% in the fourth quarter of 2008 and it has announced a string of temporary layoffs.
President Obama last Monday gave Chrysler 30 days to sign a definitive agreement with Fiat, presented as the only hope for the automaker to return to profitability and a pre-requisite to any further government aid.
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By GlobalDataThe prospect that Fiat could “save” Chrysler from collapse has sparked a wave of national pride in Italy, according to AFP.
Prime minister Silvio Berlusconi said on Tuesday that Obama’s support for the alliance was”a source of satisfaction for all Italians and a recognition of the excellence of one of our great companies.”
Chrysler said late Monday that a “framework agreement” had been reached with Fiat under which the Italian firm would initially take a 20% stake in its American partner.
Under a preliminary accord signed in January, Fiat would initially take a 35% stake which could rise to as much as 55%.
“At first it will be 20% (and) rise gradually to 35%, according to adjustments in Chrysler’s (restructuring) plan,” a source told AFP.
While Fiat would pay nothing, it would provide access for Chrysler to its technology, notably that for smaller, more economical vehicles.
Standard and Poor’s said it did not expect Fiat to spend money in its tie-up with Chrysler but wanted “more details in the coming weeks.”
Some investors fear the US government will seek a bigger commitment from Fiat, which will not be allowed more than a 49% stake in Chrysler until US government loans are repaid, according to the White House.
