LONDON -- Credit rating agency Fitch Ratings said on Tuesday it had cut Italian industrial group Fiat SpA's senior unsecured debt rating to "junk", and may cut again, citing concerns about the firm's creditworthiness.
Fitch cut Fiat's senior unsecured rating one notch to BB+, its highest "junk" rating, from BBB-, and also lowered its short-term rating to B from F3.
It said the rating outlook for the company remains negative.
The downgrade came as investors await the outcome of a review by fellow rating agency Standard & Poor's, which currently assigns Fiat an A-3 short-term rating, at the bottom of its investment grade scale, with a negative outlook.
S&P postponed a decision on the rating on January 22, pending clarification of the group's plans for its Fiat Auto unit.
Fitch said in a statement on Tuesday that the downgrade reflected its concern that Fiat's future core operations were no longer consistent with an investment grade credit profile.
Fiat said on Friday it intended to dispose of its two best performing operations, Fiat Avio and Toro Insurance to reduce indebtedness.
"It is Fitch's view that this announcement, alongside the appointment of a new CEO and chairman, reflects a change in strategy," Fitch said. "As a result of the announced disposals, Fitch no longer views Fiat as an investment grade entity. The negative outlook reflects the modest earnings outlook for the remaining operations."
Fitch said it would review Fiat's rating "upon a material failure of the cost reduction objectives in the automotive division during 2003, which would adversely impact the projected substantial reduction in operating losses".
S&P CUT ALSO SEEN LIKELY
Fiat also unveiled plans on Friday to shore its car arm's finances with a five billion euro capital increase, of which three billion euros will come immediately from the cancellation of an inter-company loan.
The move was seen as an indication that the unit was key to the Fiat group and was less likely to be disposed of or sold to U.S. General Motors under a put option which could force GM in 2004 to buy the 80 percent of Fiat Auto it does not own.
That in turn led analysts to say they believed a ratings cut from S&P was highly likely, as the decision to extend the review was based on the possibility of the company distancing itself from the sputtering auto maker.
"The extension of the CreditWatch placement reflects the possibility that Fiat will distance itself from its problem-plagued automotive unit Fiat Auto Holding earlier than previously assumed, as proposed by third parties under several restructuring plans," S&P credit analyst Virginie Casin said in a statement in January.
Credit rating agency Moody's Investors Service cut Fiat's debt ratings to "junk" status in December, leaving the company with a negative outlook, meaning another cut is more likely than an upgrade.
It said Fiat was unlikely to warrant an investment-grade rating even if it disposes of its remaining 80 percent stake in cash-burning Fiat Auto to GM.