Nissan Motor Co. may need its U.S. captive, Nissan Motor Acceptance Corp., to funnel additional liquidity to the OEM.
Nissan Motor Co.’s financial strength continues to weaken, a deterioration that began before the coronavirus crisis and has only worsened in recent weeks, according to Moody’s Investors Service. Even starting in February, Moody’s began to cut Nissan Motor Co.’s credit rating.
Last week, Moody’s knocked down NMAC’s ratings because the captive may need to financially support its parent company with its own liquidity. NMAC has been placed on review for further downgrade, Moody’s noted. The disclosures on NMAC were buried in Moody’s correspondences on Nissan Motor Co. last week.
Nissan Motor Co. is in a cash crunch. The OEM’s free cash flow was -$6.2 billion before dividend payments for the nine months ended December 2019. Moreover, “additional restructuring costs to downsize its global production facilities may also weigh on future cash flow,” Moody’s noted. Nissan is deeply exposed to the economic slowdown in China, where it sells 30% of its vehicles.
NMAC had about $15.9 billion of liquidity as of December 31, 2019, the captive shared with AFN. Among the available liquidity is a $7 billion revolving credit facility that NMAC has available, a company spokesperson confirmed. “Those lines are fully committed by our banking partners, and were and continue to remain undrawn at this point,” the spokesperson said.
NMAC originated about $20.8 billion of loans and leases in the U.S. last year, and finished 2019 with $49.4 billion of total outstandings, according to Big Wheels Auto Finance Data.
With the rapid spread of the coronavirus, the credit strengths of automakers and their captives will feel financial “shock” as delinquency rates, loan defaults and lease residual realization trends will worsen in the next 12 to 18 months, Moody’s noted. Moody’s did acknowledge that captives today are “moderately well-positioned” to weather financial “shock.”
NMAC, for its part, is now facing two challenges: weaker results due to coronavirus and a stumbling parent company.
“A material decline in asset quality and profitability beyond Moody’s current expectations, diminished liquidity, or leverage to less than 13.5% could lead to a lower stand-alone assessment for NMAC,” according to the rating agency.