DBRS Assigns Provisional Rating of BB (high) to DaimlerChrysler Financial Services Americas LLC

DBRS has assigned a provisional Issuer Rating of BB (high) to DaimlerChrysler Financial Services Americas LLC (CF or the Company). Concurrently, DBRS has assigned a provisional rating of BBB to the Company’s proposed issuance of $4 billion of senior secured debt (First Lien Secured Credit Facility), and a provisional rating of BB to the proposed $2 billion junior secured debt (Second Lien Secured Credit Facility). The trend on all ratings is Stable. The ratings assume that an affiliate of Cerberus Capital Management, L. P. (Cerberus) acquires an 80.1% interest in Chrysler Holdings LLC from DaimlerChrysler AG, for approximately $7.2 billion. Importantly, the ratings are based on certain key assumptions provided by management and are subject to confirmation, following a verification that the terms and conditions at closing are largely similar to those discussed with management. DBRS views that the Company’s corporate governance policies, its operating arrangements and financial structure largely de-link the ratings of Chrysler LLC (Auto) and CF. However, given the vast majority of CF’s revenues and business are sourced from Auto, a certain level of rating linkage remains. Finally, DBRS’s rating of CF is based on the expectation that substantive consolidation would not be likely should one of CF’s related entities enter into bankruptcy.

The Issuer Rating is based on the Company’s acceptable profitability, its overall sound capitalization, conservative leverage, and stable, strong asset credit quality. The Company’s considerable capitalization and conservative leverage are significant positive rating factors. Despite the weakness at the auto company, CF continues to perform consistently. Revenues continued to trend positively over the recent three-year period; however, increased interest expense and the increased depreciation associated with higher-than-normal leasing activity have pressured earnings. Going forward, CF expects to reduce the amount of lease transactions, which should positively impact earnings in the medium to longer term. Asset quality remains strong and compares favorably to peers, owing to sound risk management practices and a low risk appetite. Further, after the transaction, the Company benefits from reduced, measurable and manageable residual risk exposure. Finally, DBRS considers Cerberus to be a strategic investor with a strong hands-on experienced management team that will likely benefit CF going forward.

Offsetting factors include CF’s North American, largely United States, concentration, which adds a level of exposure to the U.S. economy. Moreover, the Company’s concentration in Chrysler Automotive-related business exposes CF to potential earnings volatility in the event of a weakening of sales for Chrysler Auto products. Additionally, although the Company has ample liquidity, the funding profile is considered a weakness, owed to the large presence of secured debt and the largely encumbered balance sheet.

DBRS’s rating of the First Lien Secured Credit Facility, which is two notches above the Issuer Rating, considers the priority of the First Lien and the improved recovery for the First Lien holder. DBRS has stressed the asset valuation of the security and has concluded that the anticipated recovery rate of the First Lien improves significantly from the base recovery rate. DBRS’s rating of the Second Lien Secured Facility, which is one notch below the Issuer Rating, considers the subordination of the Second Secured Lien. Based on the stress test, DBRS has concluded that a significant portion of the eligible collateral would be used to support the First Lien, notably reducing recovery prospects for the Second Lien.

Note:
All figures are in U.S. dollars unless otherwise noted.
For the definition of Issuer Ratings, please refer to "Rating Definitions" under "Rating Policies" on www.dbrs.com

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