DBRS Morningstar Upgrades Fiat Chrysler Automobiles N.V. to BBB and Notes Name Change to Stellantis N.V.; Concurrently Discontinues Rating on Peugeot SA

DBRS Limited (DBRS Morningstar) upgraded the Issuer Rating and Senior Unsecured Debt rating of Fiat Chrysler Automobiles N.V. (FCA) to BBB from BBB (low) while noting FCA’s name change to Stellantis N.V. (Stellantis or the Company). The trends on the Company’s ratings are Stable. Concurrently, DBRS Morningstar discontinued its Issuer Rating of BBB (low) on Peugeot SA (PSA). The rating actions follow the completion of the merger of PSA with and into FCA (the Merger) that closed on January 16, 2021. As a function of the Merger, the separate corporate existence of PSA has ceased, with Stellantis continuing as the sole surviving corporation. Moreover, through the Merger, Stellantis assumed all of PSA’s rights and obligations and other legal relationships, as well as its assets and liabilities. The rating upgrades reflect the improved credit profile of FCA/Stellantis as a result of the Merger, which has favourably affected both its business risk assessment (BRA) and financial risk assessment (FRA).

DBRS Morningstar notes that the Company’s BRA is stronger than FCA’s on a stand-alone basis given improvements in numerous factors. Firstly, Stellantis’ market position has strengthened through PSA’s additional volumes. On a combined basis (i.e., including FCA and PSA), Stellantis’ global sales in 2019 totalled approximately 8.1 million units, ranking among the world’s largest automotive original equipment manufacturers by sales volume. Moreover, while FCA had a sizable presence in Europe before the Merger, PSA’s additional concentration in that region effectively serves to lessen Stellantis’ earnings dependence on North America, thereby improving its geographic diversification. DBRS Morningstar also notes that the addition of PSA’s brands and models (with its fleet consistently ranking among the European leaders in carbon dioxide emissions) serves to bolster Stellantis’ product diversification and brand portfolio. Finally, potentially sizable growth opportunities and synergies stand to be derived as a function of the Merger; DBRS Morningstar notes that the recent track records of both FCA and PSA in this area are rather favourable (taking into account the companies’ earlier respective acquisitions of the Chrysler Group and General Motors’ European operations).

DBRS Morningstar also notes that Stellantis’ post-Merger financial profile is sound, with its FRA and projected credit metrics being commensurate with the assigned ratings. Additionally, the Company’s resulting liquidity position is substantial, with its pro forma cash balance as of year-end 2020 estimated by DBRS Morningstar at close to EUR 40 billion, supplemented by remaining availability under backup credit lines. As such, Stellantis is well positioned to absorb any lingering effects of the ongoing progression of the Coronavirus Disease (COVID-19) pandemic; DBRS Morningstar notes further that the automotive industry was quite resilient (in terms of financial performance) to the coronavirus pandemic last year, exceeding our expectations. While Stellantis appointed an executive team, including a chief financial officer, as of January 19, 2021, the Company has yet to formally disclose its financial policy. DBRS Morningstar notes, however, that the historical financial policies of each FCA and PSA were quite conservative, with Stellantis’ eventual financial policy not expected to materially deviate therefrom.

Given the rating upgrades, additional positive rating actions are not anticipated in the near term. The Stable trends on the ratings reflect the Company’s aforementioned strong liquidity position amid the automotive industry’s anticipated sales recovery (following a sizable contraction last year substantially attributable to coronavirus). While structural cost headwinds (in the form of tightening emissions regulation/electrification efforts and new mobility initiatives) persist, DBRS Morningstar estimates these to be considerably offset by the anticipated strength in key automotive markets, bolstered by a favourable pricing environment. However, highly adverse developments concerning the progression of coronavirus and/or significant underperformance by Stellantis (possibly reflecting execution challenges stemming from the Merger) could result in negative rating implications.

A description of how DBRS Morningstar considers ESG factors within the DBRS Morningstar analytical framework and its methodologies can be found at https://www.dbrsmorningstar.com/research/357792.

Notes:
All figures are in euros unless otherwise noted.

The principal methodologies are Rating Companies in the Automotive Manufacturing and Supplier Industries (October 22, 2020) and DBRS Morningstar Criteria: Rating Corporate Holding Companies and Parent/Subsidiary Rating Relationships (November 2, 2020), which can be found on dbrsmorningstar.com under Methodologies & Criteria.

For more information regarding rating methodologies and Coronavirus Disease (COVID-19), please see the following DBRS Morningstar press release: https://www.dbrsmorningstar.com/research/357883.

The related regulatory disclosures pursuant to the National Instrument 25-101 Designated Rating Organizations are hereby incorporated by reference and can be found by clicking on the link under Related Documents or by contacting us at info@dbrsmorningstar.com.

The rated entity or its related entities did participate in the rating process for this rating action. DBRS Morningstar had access to the accounts and other relevant internal documents of the rated entity or its related entities in connection with this rating action.

This rating is endorsed by DBRS Ratings Limited for use in the United Kingdom, and by DBRS Ratings GmbH for use in the European Union, respectively. The following additional regulatory disclosures apply to endorsed ratings:

Each of the principal methodologies employed in the analysis addressed one or more particular risks or aspects of the rating and were factored into the rating decision. Specifically, Rating Companies in the Automotive Manufacturing and Supplier Industries (October 22, 2020) was utilized to evaluate the ratings of Fiat Chrysler Automobiles N.V./Stellantis N.V. and Peugeot SA. Subsequently, DBRS Morningstar Criteria: Rating Corporate Holding Companies and Parent/Subsidiary Rating Relationships (November 2, 2020) was applied to assess the corporate structure of the Fiat/Stellantis group of companies.

For Fiat Chrysler Automobiles N.V., the last rating action took place on August 18, 2020, when DBRS Morningstar confirmed the ratings at BBB (low) with a Negative trend. For Peugeot SA, the last rating action took place on November 6, 2020, when DBRS Morningstar confirmed the ratings at BBB (low) with a Negative trend.

Generally, the conditions that lead to the assignment of a Negative or Positive trend are resolved within a 12-month period. DBRS Morningstar trends and ratings are under regular surveillance.

For further information on DBRS Morningstar historical default rates published by the European Securities and Markets Authority (ESMA) in a central repository, see: http://cerep.esma.europa.eu/cerep-web/statistics/defaults.xhtml. DBRS Morningstar understands further information on DBRS Morningstar historical default rates may be published by the Financial Conduct Authority (FCA) on its webpage: https://www.fca.org.uk/firms/credit-rating-agencies.

Lead Analyst: Robert Streda, Senior Vice President, Diversified Industries
Rating Committee Chair: Charles Halam-Andres, Managing Director, Diversified Industries and Sports Finance
Initial Rating Dates:
Fiat Chrysler Automobiles N.V./. Stellantis N.V.: November 8, 2005
Peugeot SA: August 16, 2006

For more information on this credit or on this industry, visit www.dbrsmorningstar.com or contact us at info@dbrsmorningstar.com.

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-- Rating Companies in the Automotive Manufacturing and Supplier Industries (October 22, 2020)
https://www.dbrsmorningstar.com/research/368670/rating-companies-in-the-automotive-manufacturing-and-supplier-industries
-- DBRS Morningstar Criteria: Rating Corporate Holding Companies and Parent/Subsidiary Rating Relationships (November 2, 2020)
https://www.dbrsmorningstar.com/research/369167/dbrs-morningstar-criteria-rating-corporate-holding-companies-and-parentsubsidiary-rating-relationships