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

Rating action

Scope Ratings has affirmed the A/Stable issuer credit rating of Mercedes-Benz Manufacturing Hungary Kft. (MBMH). The instrument rating on the bond issued by MBMH and guaranteed by Daimler AG has been affirmed at A.

Rating rationale

MBMH is a wholly owned subsidiary of Mercedes-Benz AG and produces Mercedes-Benz compact vehicles (A-class, CLA Coupé, and CLA Shooting Brake) within the global production footprint of its parent company. MBMH is scheduled in late 2021 to start series production of a fully electric sport utility vehicle, EQB.

MBMH is one of the largest companies in Hungary, with 4,700 employees. The rated entity has issued a HUF 40bn bond with a seven-year tenor under the Bond Funding for Growth Scheme of the Hungarian National Bank.

MBMH’s ratings are derived from the A rating of its guarantor, Daimler AG. The corporate rating reflects Daimler’s implicit guarantee to MBMH, based on the latter’s 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 of MBMH’s outstanding HUF 40bn bond.

The A rating on guarantor Daimler 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 from the captive finance business, Daimler Mobility, 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 is its strong financial risk profile, supplemented by a supportive liquidity position. Daimler’s unrestricted and available liquidity (including marketable securities) exceeds the limited financial debt in its industrial unit as well as Scope’s debt adjustments (for pension obligations; operating leases formerly adjusted for that moved onto the balance sheet in 2019). This results in a negative Scope-adjusted debt figure. The net cash position ultimately results in strong credit ratios: those that are key for Scope’s assessment of automakers, Scope-adjusted debt/EBITDA and funds from operations/Scope-adjusted debt, are both negative.

Outlook and rating-change drivers reflect those of guarantor Daimler AG

The Outlook is Stable and incorporates Scope’s expectation that MBMH’s guarantor, Daimler, should keep a strong financial risk profile, the key support for the ratings, with Scope-adjusted debt expected to remain negative with no meaningful incremental financial debt in the industrial business, if any.

Scope would consider a negative rating action if free operating cash flow in Daimler’s industrial business turned negative on a sustained basis owing to a substantially lower unit-sales volume in its car/van and truck/bus divisions. In line with its perception of Daimler’s financial policy, Scope does not expect material changes to shareholder remuneration or any sizeable acquisitions.

The ratings could be negatively impacted if Daimler’s financial policy became more aggressive, for example, by engaging in a large acquisition funded by cash and debt. However, Scope does not view this as a likely scenario. A negative rating action would likewise be considered if Daimler’s Scope-adjusted EBITDA margin failed to reach above 8% in the medium term, as this would prompt a negative adjustment on the business risk profile.

Scope would consider a positive rating action if Daimler maintained its cautious financial policy, including moderate dividend pay-outs, substantial liquidity, and strong credit metrics, coupled with an improvement in the Scope-adjusted EBITDA margin to above 12%.

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

Methodology
The methodologies used for this rating(s) and/or rating outlook(s) (Corporate Rating Methodology,  26 February 2020; Rating Methodology: Automotive and Commercial Vehicle Manufacturers, 14 February 2020) are available on https://www.scoperatings.com/#!methodology/list.
Information on the meaning of each rating category, including definitions of default and recoveries can be viewed in the “Rating Definitions - Credit Ratings and Ancillary Services” published on https://www.scoperatings.com/#!governance-and-policies/rating-scale. 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 Ratings’ definitions of default and rating notations can be found at https://www.scoperatings.com/#governance-and-policies/rating-scale. Guidance and information on how Environmental, Social or Governance factors (ESG factor) are incorporated into the rating can be found in the respective sections of the methodologies or guidance documents provided on https://www.scoperatings.com/#!methodology/list.
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 rated entity participated in the rating process. The rating process was conducted:
With Rated Entity or Related Third Party Participation:     YES
With Access to Internal Documents:                                  YES
With Access to Management:                                            NO
The following substantially material sources of information were used to prepare the credit rating: the rated entity, public domain, 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/or outlook and the principal grounds on which the credit rating and/or 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, Lennéstraße 5, D-10785 Berlin, Tel +49 30 27891-0. The credit rating and/or outlook is UK endorsed.
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 under Governance & Policies/EU Regulation/Disclosures for a list of potential conflicts of interest related to the issuance of credit ratings.
 
Conditions of use / exclusion of liability
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