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S&P lowers Daimler ratings to A- with a negative outlook

S&P Global Ratings on Dec. 12 lowered its long-term issuer credit ratings on Daimler AG and Daimler North America Corp. to A- from A, with a negative outlook.

The agency, which has removed Daimler's A ratings from CreditWatch, anticipates the automaker's EBITDA margin to remain below 10% at least until 2021 after Daimler lowered its earnings guidance for 2020 to 2022.

It also downgraded the companies' short-term ratings to A-2 from A-1 and their senior unsecured debt's issue-level ratings to A- from A.

Ratings expects the company to generate free operating cash flow of less than €1.5 billion in 2019 to 2020 and then recover it to more than €4 billion in 2021. It noted that Daimler remains exposed to multiple headwinds, including risks on its cost-cutting program, diesel-related litigation and challenging carbon dioxide regulatory targets in Europe.

"We believe the group's performance will be challenged by weak global auto industry conditions, characterized by increasing competition, softer volume growth, and pressure on raw material costs," the agency added.

The negative outlook reflects Ratings' view that Daimler may not return its EBITDA margin to more than 10% over the next two years and could fail to return automotive free operating cash flow to more than €4 billion.

The agency will downgrade the German manufacturer further if it fails to have an adjusted EBITDA margin of less than 8% in 2020 or if it loses a significant portion of its share in the Mercedes-Benz Cars or Daimler Trucks market. However, it could revise its outlook to stable if Daimler stabilizes its adjusted EBITDA margins over the coming years.