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Fitch Places GM Financial's European Subs on Negative Watch on Pending Sale to PSA Group
March 8, 2017 / 9:31 PM / 6 months ago

Fitch Places GM Financial's European Subs on Negative Watch on Pending Sale to PSA Group

(The following statement was released by the rating agency) NEW YORK, March 08 (Fitch) Fitch Ratings has placed the 'BBB-/F3' Issuer Default Ratings (IDRs) of three European subsidiaries of General Motors Financial (GMF) on Rating Watch Negative following the announced sale of General Motors Company's (GM) European operations to PSA Group (PSA, 'BB+'/Outlook Stable) for approximately $2.2 billion. As part of this transaction, GMF subsidiaries Opel Bank GmbH, GMAC (UK) Plc, and General Motors Financial International B.V. (GMI) are expected to be sold to a joint venture (JV) 50% owned by PSA and 50% owned by BNP Paribas ('A+/Outlook Stable). The sale is subject to various regulatory approvals but is expected to close by the end of 2017. A complete list of rating actions follows at the end of this press release. GMF's IDRs and senior debt ratings of GMF are unaffected by the announced sale of GM's European operations. These ratings remain equalized with those of GM reflecting Fitch's view that GMF remains core to GM's remaining operations based on actual and potential support provided to GMF from GM, an increasing percentage of GMF's earning assets related to GM, and strong financial and operational linkages between the companies. The Negative Rating Watch does not extend to GMI's Euro Medium Term Note Programme, as it is guaranteed by GMF until the notes are fully repaid. For a further discussion on the announced transaction's expected impacts on GM and PSA, please refer to Fitch's press releases 'Sale of Opel/Vauxhall Improves GM's Profitability but Reduces Diversification' and 'Opel Acquisition Moderately Positive for PSA', both dated March 6, 2017 and available at www.fitchratings.com. KEY RATING DRIVERS - IDRs The Rating Watch Negative on GMF's European subsidiaries' IDRs, reflects the expected eventual removal of financial support from GM on which the existing ratings are currently primarily based upon. GM's agreement to sell its European finance subsidiaries indicates that these entities are no longer core to the company. GM has also indicated that if the sale of the European finance subsidiaries is not consummated with PSA, it will seek to wind down the European finance subsidiaries. Information on the JV structure that is expected to assume the debt of these subsidiaries, including the strategic importance of the subsidiaries to the JV owners and the propensity of the JV owners to extend financial support to the subsidiaries, is currently limited. As such, Fitch is not yet able to determine the magnitude of a potential downgrade in the event that the acquisition is consummated. RATING SENSITIVITIES - IDRs Fitch expects to resolve the Rating Watch at the time the transaction closes, pending receipt of additional clarity on the new JV structure. Under a scenario where Fitch determined that the European finance subsidiaries were core to PSA, the ratings could be equalized with PSA's 'BB+' IDR. Under a scenario where Fitch determined that the European finance subsidiaries were strategically important or of limited importance to PSA, the ratings could be notched down from PSA's ratings or determined based on the standalone credit risk profiles of the subsidiaries. The acquiring JV is expected to be 50% owned by BNP Paribas, which is more highly rated. This could theoretically moderate the degree of downside pressure or provide rating uplift to the European finance subsidiaries' ratings depending on the terms of the JV structure. Nevertheless, Fitch has generally taken a more conservative view when determining the ratings of a financial subsidiary when there is joint ownership, as it could reduce the perceived moral obligation of the parent to unilaterally support the subsidiary, and might complicate and/or delay decisions on the provision of joint support. Negative rating momentum could also result from a failure to close the sale of GMF's European subsidiaries while still closing the sale of GM's European operations. In this instance, GMF has indicated it would wind down GMF's European subsidiaries, which would likely cause Fitch to characterize these subsidiaries as non-core, and result in a downward notching from the parent's ratings. Prior to the close of the transaction, negative rating pressure could be driven by a downgrade of the ratings of GM and GM Financial. Prior to the close of the transaction, positive rating momentum on the IDRs is viewed as highly unlikely even in the event GM and GMF's ratings were to be upgraded. This would reflect the uncertain state of the European subsidiaries' ultimate ownership structure and the fact that the European subsidiaries are no longer core to GM. Fitch has placed the following ratings on Rating Watch Negative: Opel Bank GmbH --Long-term IDR 'BBB-'; --Short-term IDR 'F3'. GMAC (UK) Plc --Long-term IDR 'BBB-'; --Short-term IDR F3'. General Motors Financial International B.V. --Long-term IDR 'BBB-' Contact: Primary Analyst Michael Taiano Director +1-646-582-4956 Fitch Ratings, Inc. 33 Whitehall St. New York, NY 10004 Secondary Analyst Jared Kirsch Associate Director +1-212-908-0332 Committee Chairperson Joo-Yung Lee Managing Director +1-212-908-1560 Media Relations: Hannah James, New York, Tel: + 1 646 582 4947, Email: hannah.james@fitchratings.com. 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