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S&P upgrades Fiat Chrysler on improving leverage

S&P Global Ratings raised the long-term corporate credit ratings on Fiat Chrysler Automobiles NV to BB+ from BB, with a positive outlook, citing the company's strengthening leverage metrics.

The rating agency estimated the automaker's funds from operations, or FFO, to adjusted debt ratio at more than 60% in 2017, up from 46% a year earlier. The company's adjusted debt to EBITDA ratio was estimated at below 1.3x, while the free operating cash flow, or FOCF, to adjusted debt ratio was estimated at around 15% last year.

"We expect further improvements in these metrics in 2018 and 2019, which could support a higher rating," S&P said.

For 2018, S&P is projecting ratios of FFO to debt above 70%, debt to EDITDA below 1.0x, and FOCF to debt between 15% and 20%.

Fiat Chrysler's leverage metrics are improving despite slowing demand in the key U.S. market and the risk of fines from an ongoing civil lawsuit filed by the U.S. Department of Justice in relation to certain diesel engine emission control systems, according to the rating agency.

S&P said it could upgrade Fiat Chrysler to BBB- if the company increases its FOCF to debt ratio above 25% and sustains an FFO to debt ratio over 60%. The ratings could also be raised if the company avoids fines of more than €2.0 billion from the ongoing U.S. lawsuit.

S&P Global Ratings and S&P Global Market Intelligence are owned by S&P Global Inc.