Fitch Ratings has downgraded and placed on Rating Watch Negative the Issuer Default Rating (IDR) of Daimler Chrysler Financial Services America LLC (DCFS) to 'CC' from 'B-'. A 'CC' rating indicates that default of some kind appears probable. Approximately $8 billion of debt is affected by this action.
Today's action reflects the deteriorating financial condition of DCFS' parent company Chrysler LLC (Chrysler). Chrysler's downgrade was driven by the terms of federal government support, whereby the company has until March 31, 2009 to produce a plan for long-term profitability, including concessions from unions, creditors, suppliers and dealers. Terms also include a reduction in Chrysler's current debt load, which Fitch believes could take the form of a distressed debt exchange. Chrysler's IDR of 'C' indicates that default is imminent.
Where appropriate, Fitch has recognized a one-notch differential between the IDR of a captive finance company and that of an original equipment manufacturer (OEM) in the past. However, Fitch believes that a one-notch differential would not be supported if Chrysler declares bankruptcy or its viability becomes suspect. Fitch would also downgrade and equalize the ratings of DCFS with those of Chrysler should the debt of DCFS be restructured or become subordinate to obligations purchased by the U.S. Treasury. Negative rating actions would also result if the existing escrow backstop that supports any obligation Chrysler may owe to DCFS is amended.
Similarly, DCFS' Recovery Ratings could be revised to reflect the impact of debt restructuring or diminished collateral valuations from the bankruptcy of one or more U.S automakers. The Recovery Ratings on the first-lien term loan and second-lien revolver are 'RR1' and 'RR3', respectively, and are based on the respective collateral coverage for these instruments. 'RR1' implies recovery between 90%-100%, while 'RR3' implies recovery between 51%-70%.
Fitch has downgraded and placed on Rating Watch Negative the following:
Daimler Chrysler Financial Services Americas LLC
--Long-term IDR to 'CC' from 'B-'
--Secured first lien to 'CCC+/RR1' from 'BB-/RR1'
--Secured second lien to 'CCC-/RR3' from 'B/RR3'
--Short-term IDR to 'C' from 'B.'
Fitch's rating definitions and the terms of use of such ratings are available on the agency's public site, www.fitchratings.com. Published ratings, criteria and methodologies are available from this site, at all times. Fitch's code of conduct, confidentiality, conflicts of interest, affiliate firewall, compliance and other relevant policies and procedures are also available from the 'Code of Conduct' section of this site.