Five-year credit-default swap spreads on Fiat widened last week to 1,200 basis points from 1,100bps, in a delayed reaction to Moody's Investors Service's downgrade of the credit to junk. Traders said that in a quiet holiday-shortened week, Fiat was the only credit that saw a movement.
"Continuing uncertainty in Fiat will weigh on spreads," said one trader in London. Although Moody's downgraded the car manufacturer on Dec. 23, because of illiquidity during the holiday season the effect filtered through slowly, traders said.
Virginie Casin, analyst at Standard & Poor's in London, said S&P has Fiat on a negative credit watch with a short-term rating of A3. Both Moody's and S&P have had the credit on watch since the beginning of November, but market pricing shows traders did not believe either agency would actually cut the rating. Casin added that Standard & Poor's expects to resolve the negative credit watch by the end of the month, adding that negative credit watch usually results in a downgrade. Fiat's pending sales of non-core divisions, such as Fraikin, a truck leasing group, could help alleviate the company's refinancing burden, but that the agency still needs to examine whether such actions would improve the company's cash flows.
Five-Year Credit Protection On Fiat
