Moody's Investors Service this week has upgraded to Ba2 from Ba3 Fiat SpA's Corporate Family Rating, and the group's other long-term senior unsecured ratings. At the same time, the positive outlook on all long-term ratings was maintained. The short term non-Prime rating remains unchanged.

Falk Frey, Senior-Vice-President and the lead analyst at Moody's for the European automotive sector, said: "The ratings upgrade reflects the successful turnaround that Fiat has achieved over the last two years, with its improving operating performance resulting in a stronger financial flexibility. We expect this positive trend to continue in 2007, which could lead to further positive rating changes as indicated by the positive outlook."

Moody's says that the positive outlook is based on the expectation that Fiat can sustain the current momentum, benefiting from i) the launch of new volume models (Fiat Bravo in H1 2007 and Fiat 500 in Q4 2007), ii) a gradual overhaul of its Alfa Romeo and Lancia models, iii) an ongoing improvement of its dealer network as well as iv) ongoing efficiency gains. Moody's also anticipates that Fiat will generate positive cash flows going forward which should facilitate further debt reduction and eventually lead to an improved overall financial profile.

Such an improvement -- as evidenced by (i) RCF/Net Debt approaching low to mid 20ies %, (ii) FCF/Debt in high single digits and (iii) an adjusted EBIT Margin of app. 3.5% - could put some upward rating pressure on the Ba2 ratings and position Fiat within the Ba1 category within the next 6-12 months.

However, Moody's cautions that recent improvements have to be sustained and closely managed if the company is to strengthen its overall credit profile on a permanent basis. Most notably, new model launches (initially led by the Fiat Bravo and Fiat 500) will need to tie up to the success of the Fiat Grande Punto and back-up regained market shares and volume growth in a more challenging market.
 

Particularly as 2007 and 2008 will also see the launch of new models from key European competitors who are all eyeing to defend and increase market shares within an overall flat Western European car market. Furthermore, the envisaged reorganisation of sales channels for Fiat, Lancia and Alfa Romeo across key geographies also remains of major importance to the company's business profile and capacity utilization. Recently announced ventures and associations with other auto groups need to be successful to improve Fiat Auto's capacity utilisation and efficiency. In addition, management's efforts to further improve the financial profile of CNH and maintain the upward trajectory at Iveco will continue to be essential to further rating upgrades.

Upgrades: Issuer: Fiat Finance & Trade Ltd. (Senior Unsecured Medium-Term Note Program, Upgraded to Ba2 from Ba3; Senior Unsecured Regular Bond/Debenture, Upgraded to Ba2 from Ba3). Issuer: Fiat Finance Canada Ltd. (Senior Unsecured Medium-Term Note Program, Upgraded to Ba2 from Ba3). Issuer: Fiat Finance North America Inc. (Senior Unsecured Medium-Term Note Program, Upgraded to Ba2 from Ba3). Issuer: Fiat S.p.A. (Corporate Family Rating, Upgraded to Ba2 from Ba3).

Moody's last rating action on Fiat was an affirmation of the Ba3 ratings and a change in the outlook to positive from stable on November 2, 2006. This week's financial ratings upgrade by Moody's comes just weeks after Fiat Spa was given a a positive upgrade by another leading agency, Fitch Ratings, which on 26th January upgraded Fiat’s rating to ‘BB’ from 'BB-'. The Short-term rating was affirmed at ‘B’, while the Outlook remained as Positive. Concurrently, Standard & Poor's Ratings Services revised its own outlook on Fiat ratings to Positive from Stable, affirming the 'BB' long-term and 'B' short-term corporate credit ratings.