Despite being rated as high-yield, or "junk," status, the new four-year issue Thursday drew heavy demand in the book-building process, with subscriptions of about €8 billion despite some concerns over its liquidity levels and its stake in ailing U.S. auto maker Chrysler Group LLC.
Fiat's bond will yield 9.25%, compared with a yield of 6.255% that was offered by investment-grade German car manufacturer BMW AG in February. The gap reflects the premium that Fiat must pay for funding.
Although 'it's a tough market for autos,' according to one analyst, Fiat's $1.78 billion issue saw brisk demand. Here, the dash of a 1980 Fiat 124 Spider.
In late May, the European junk-bond market began to revive following a yearlong hibernation imposed by investors' wariness of poor credit ratings.
Since then, there has been a steady stream of companies, including Italian telecommunications company Wind SpA and French spirits company Pernod-Ricard SA, launching high-yield bonds.
Fiat became a so-called fallen angel earlier this year when its credit ratings were downgraded to junk status from investment grade, adding to the company's liquidity problems.
That kind of a downgrade increases funding costs and eliminates investment-grade funds from its list of possible investors.
Jonathan Moore, a high-yield research analyst at Evolution Securities, said the bond market was familiar with the company and the deal would be completed with ease.
"It will not be a big test for the market, it is something it will be able to handle easily," Mr. Moore said. "It's a tough market for autos, but Fiat has done a reasonably good job and they are one of the auto companies that has done OK."
Analysts at research firm CreditSights said the proceeds of the bond would provide a useful boost to Fiat's liquidity, which currently stands at €6.5 billion.
The company, which has total net debt of €17.8 billion, has €7.4 billion maturing in the next 18 months, according to analysts at Standard & Poor's Corp.
"We understand that these maturities are currently covered, but there is still no headroom under the group's available committed bank line," S&P analyst Barbara Castellano said.
But analysts at CreditSights said that taking advantage of the receptiveness of the bond market and bolstering the company's liquidity cushion were positive moves for Fiat and would improve its credit-risk profile.
A Fiat spokesman declined to comment on the subject.
High-yield bonds are rated below Baa3 by ratings firm Moody's Investors Service and BBB- by S&P and Fitch Ratings.
S&P on Thursday said it was holding Fiat's rating at BB+ on a negative credit watch, suggesting that a possible downgrade could be pending.
Fiat also has a Ba1 rating from Moody's and a BB+ rating from Fitch.
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