London-based industrial analysts are concerned that the reaffirmation of Fiat's Baa2 stable rating from Moody's Investors Service last week is not accurate given the amount of work the company has to do to de-leverage. "Given the fact that they're restructuring so heavily and haven't performed well even in good times, I'm surprised with the stable outlook," says Victoria Whitehead, analyst at Bear Stearns in London. "It's not a good company. The rating is deceiving," she adds. Whitehead believes Fiat should be rated Baa3 with a negative outlook. Calls to Eric de Bodard, managing director at Moody's in London, were not returned.
Last week, Fiat announced its intention to reduce its debt to €3 billion by the end of next year through a mixture of rights issues and an €2.2 billion bond exchangeable into General Motors shares. Cyril Benayoun, analyst at BNP Paribas in London, says the exchangeable deal will not give Fiat any financial flexibility. "It can't considered to be anything but additional debt," he says. He adds that he disagrees with Moody's stable outlook and that a downgrade is likely next year. "[Fiat] wants to return to a single-A rating, but it's not possible," he says. Both Benayoun and Whitehead believe Fiat could have trouble with its planned asset sales, which will make its structuring easier said than done. Fiat does not have a long-term rating from Standard & Poor's.