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Moody's Prices Honda Unit's Notes - Analyst Blog

By: Zacks.com
Posted: 10/8/2013 4:15:00 PM
Referenced Stocks: DDAIF;FUJHY;HMC;MCO

Moody's Japan K.K. of Moody's Corp. ( MCO ) allotted A1 ratings to the USD Medium Term Notes Program, Series A that were issued by Honda Motor Co. 's ( HMC ) wholly-owned subsidiary American Honda Finance Corporation (AHFC). The rating agency has a stable outlook for the same.

The notes, included in the ratings are $1 billion USD MTN Program, Series A notes due in 2016, $750 million USD MTN Program, Series A floating notes due in 2016, and $1 billion USD MTN Program, Series A notes due in 2018.

The rating agency has assigned the A1 rating based on the automaker's admirable brand image together with the strong market position that Honda commands in its core automotive business. In addition, the strong position in the motorcycle business, cost efficiency and a sturdy balance sheet also influenced the rating.

Moody's assigned a stable outlook on the rating based on enhanced operating performance by Honda. The agency believes that its improved performance will continue in the future too.

The "Keep Well Agreement" between Honda and AHFC has improved the credit quality. Under this agreement, Honda needs to possess a minimum of 80% of AHFC's equity, either directly or indirectly. Meanwhile, AHFC should have positive tangible net assets and sufficient liquidity.

Moody's believes that AHFC plays an important role in Honda's U.S. auto business as it provides auto loans and leases for Honda's cars in the U.S.

Honda posted a 5.8% rise in earnings to ¥75.8 billion ($805 million) or ¥42.03 (45 cents) per share in the fourth quarter of the fiscal year ended Mar 31, 2013 from ¥71.6 billion or ¥39.72 in the same quarter of the prior fiscal year. However, earnings lagged the Zacks Consensus Estimate by 18 cents during the quarter.

Consolidated net sales and other operating revenues grew 14.1% to ¥2.7 trillion ($29.2 billion). The increase was attributable to improved revenues in automobile business operations as production recovered from the impact of Thai flood as well as favorable foreign currency translation effects.

Currently, Honda retains a Zacks Rank #2 (Buy). In the same industry, Daimler AG ( DDAIF ) and Fuji Heavy Industries Ltd. ( FUJHY ), each caring a Zacks Rank #1 (Strong Buy)  are worth a look at the moment.



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