Honda Canada Inc.: Confirms at R-1 (middle)

Kam Hon / David Schroeder

(416) 593-5577

The commercial paper rating of Honda Canada Inc., based on the rating support from the ultimate parent, Honda Motor Co., Ltd. (‘Honda’ or ‘the Company’) of Japan, is confirmed at R-1 (middle) with a Stable trend. Honda Canada Inc. is supported by a Support Agreement from Honda. The confirmation reflects the Company’s strong debt protection measures and above average profitability.

Improved operating profits and cash flow enabled the Company to strengthen its balance sheet (excluding the financial services business) by paying down debt and raising cash resources at the end of fiscal 1999 (year ended March 31). In addition, the strong coverage ratios strengthened even further. Although continuing overseas expansion is expected to keep capital expenditures moderate at about the current levels, Honda should have no problem funding its capital needs internally and should continue to generate free cash flow. Honda’s financial profile is expected to remain strong. Stronger performance in North America enabled Honda to report higher operating profit despite weaker results in Japan and the rest of Asia in fiscal 1999. Going forward, ongoing benefits from cost reduction efforts and production process improvement, growing contribution from Europe and Latin America and new model introduction should help keep operating profit at favourable levels. Furthermore, Honda’s less volatile non-automotive income should continue to provide some stability to Honda’s overall earnings. However, global overcapacity and stronger competitors as a result of consolidation could intensify in the already strong competition in the automobile industry. In addition, the strengthening of the Japanese Yen recently will put more pressure on Honda’s earnings.