The latest information on the rating, including rating reports and related methodologies, is available on this LINK.

Rating action

Scope Ratings assigns a first-time issuer credit rating of A to Mercedes-Benz Manufacturing Hungary Kft. (MBMH) with a Stable Outlook. Scope also assigns a first-time credit rating of A to the senior unsecured bond issued by MBMH and guaranteed by Daimler AG.

Rating rationale

MBMH is a wholly owned subsidiary of Mercedes-Benz AG and produces Mercedes-Benz compact vehicles (A-class, CLA Coupé, CLA Shooting Brake) within the global production footprint of Mercedes-Benz AG. MBMH is one of the largest companies in Hungary, with 4,700 employees (2018). The rated entity plans to issue a bond under the MNB Bond Funding for Growth Scheme, with a size of HUF 40bn and a seven-year tenor.

MBMH’s ratings are derived from the A rating of its guarantor, Daimler AG. The corporate rating reflects Daimler’s implicit guarantee to MBMH, assumed based on its name identity, brand responsibility and importance as a manufacturer for Daimler AG. The senior unsecured debt rating specifically reflects Daimler’s unconditional and irrevocable guarantee to debtholders regarding the planned MNB bond.

The A rating on guarantor Daimler AG reflects its track record and Scope’s expectation that its key divisions, Mercedes-Benz Cars and Daimler Trucks, will continue to hold strong market positions. Daimler’s geographic diversification, with a strong presence in both mature and developing markets, and the added diversification benefit from the captive finance business (Daimler Financial Services, renamed Daimler Mobility in July 2019) further support its business risk assessment. Limiting factors for Daimler’s business risk assessment are the pronounced risk of negative cyclical volume changes, notably in the truck division, the high capital requirements and investments in R&D to expand the product portfolio, and the technological changes currently influencing the automotive industry.

The key support for Daimler’s rating remains its financial risk profile. Significant surplus liquidity covers reported financial debt in the industrial unit, including Scope’s adjustment for pension obligations (operating leases formerly adjusted for that moved onto the balance sheet in 2019).

Daimler has limited financial debt in its industrial unit and considerable unrestricted liquidity. The group’s unrestricted and available liquidity (including marketable securities) exceeds financial debt in the industrial unit as well as Scope’s debt adjustments. The Scope-adjusted debt figure is therefore negative. The net cash position ultimately results in strong credit ratios. The credit ratios that are key for Scope’s assessment of automakers, Scope-adjusted debt/EBITDA and funds from operations/Scope-adjusted debt, are both negative.

Scope’s positive view on Daimler’s financial risk profile is supplemented by the supportive liquidity position.

Outlook and rating-change drivers: same as those of guarantor Daimler AG

The Outlook is Stable and is in line with MBMH’s guarantor, Daimler AG. Daimler’s Outlook incorporates Scope’s expectation that its financial risk profile is likely to remain strong. Daimler has a financial buffer on its key credit metrics to accommodate the current weakness in operating earnings and additional one-off costs related to legal matters. Scope-adjusted debt is very likely to remain negative.

A negative rating action is possible if free operating cash flow in Daimler’s industrial unit turned negative, triggered by an unexpected decrease EBITDA owing to a substantially lower unit-sales volume in the key car and truck divisions. In line with Scope’s perception of Daimler’s financial policy, no material changes to shareholder remuneration nor any sizeable acquisitions are expected. The ratings could be negatively impacted if Daimler’s financial policy became more aggressive, for example, if it engaged in a large acquisition funded by cash and debt. However, this scenario is unlikely.

A positive rating action could be triggered if Daimler were to continue its track record of a cautious financial policy, including moderate dividend payouts, substantial liquidity, and strong credit metrics, coupled with an improvement in the adjusted EBITDA margin to above 12%.

Stress testing and cash flow analysis
No stress testing was performed. Scope performed its standard cash flow forecasting for the company.

Methodology
The methodologies used for these ratings and/or rating outlook (Corporate Rating Methodology, Rating Methodology Automotive and Commercial Vehicle Manufacturers) are available on www.scoperatings.com.
Historical default rates of the entities rated by Scope Ratings can be viewed in the rating performance report on https://www.scoperatings.com/#governance-and-policies/regulatory-ESMA. Please also refer to the central platform (CEREP) of the European Securities and Markets Authority (ESMA): http://cerep.esma.europa.eu/cerep-web/statistics/defaults.xhtml. A comprehensive clarification of Scope’s definition of default as well as definitions of rating notations can be found in Scope’s public credit rating methodologies on www.scoperatings.com.
The rating outlook indicates the most likely direction of the rating if the rating were to change within the next 12 to 18 months.

Solicitation, key sources and quality of information
The rating was not requested by the rated entity or its agents. The rated entity or its agents participated in the rating process. Scope had access to accounts, management and other relevant internal documents for the rated entity or related third party.
The following substantially material sources of information were used to prepare the credit rating: public domain, agents of issuer, the rated entity and Scope internal sources.
Scope considers the quality of information available to Scope on the rated entity or instrument to be satisfactory. The information and data supporting Scope’s ratings originate from sources Scope considers to be reliable and accurate. Scope does not, however, independently verify the reliability and accuracy of the information and data.
Prior to the issuance of the rating or outlook action, the rated entity was given the opportunity to review the rating and outlook and the principal grounds on which the credit rating and outlook is based. Following that review, the rating was not amended before being issued.

Regulatory disclosures
This credit rating and/or rating outlook is issued by Scope Ratings GmbH.
Lead analyst: Werner Stäblein, Executive Director
Person responsible for approval of the rating: Olaf Tölke, Managing Director
The ratings/outlooks were first released by Scope on 3 March 2020.

Potential conflicts
Please see www.scoperatings.com for a list of potential conflicts of interest related to the issuance of credit ratings.

Conditions of use / exclusion of liability
© 2020 Scope SE & Co. KGaA and all its subsidiaries including Scope Ratings GmbH, Scope Analysis GmbH, Scope Investor Services GmbH and Scope Risk Solutions GmbH (collectively, Scope). All rights reserved. The information and data supporting Scope’s ratings, rating reports, rating opinions and related research and credit opinions originate from sources Scope considers to be reliable and accurate. Scope does not, however, independently verify the reliability and accuracy of the information and data. Scope’s ratings, rating reports, rating opinions, or related research and credit opinions are provided ‘as is’ without any representation or warranty of any kind. In no circumstance shall Scope or its directors, officers, employees and other representatives be liable to any party for any direct, indirect, incidental or other damages, expenses of any kind, or losses arising from any use of Scope’s ratings, rating reports, rating opinions, related research or credit opinions. Ratings and other related credit opinions issued by Scope are, and have to be viewed by any party as, opinions on relative credit risk and not a statement of fact or recommendation to purchase, hold or sell securities. Past performance does not necessarily predict future results. Any report issued by Scope is not a prospectus or similar document related to a debt security or issuing entity. Scope issues credit ratings and related research and opinions with the understanding and expectation that parties using them will assess independently the suitability of each security for investment or transaction purposes. Scope’s credit ratings address relative credit risk, they do not address other risks such as market, liquidity, legal, or volatility. The information and data included herein is protected by copyright and other laws. To reproduce, transmit, transfer, disseminate, translate, resell, or store for subsequent use for any such purpose the information and data contained herein, contact Scope Ratings GmbH at Lennéstraße 5 D-10785 Berlin.

Scope Ratings GmbH, Lennéstraße 5, 10785 Berlin, District Court for Berlin (Charlottenburg) HRB 192993 B, Managing Director: Guillaume Jolivet.