Chrysler Group LLC may get an upgrade in its credit rating in the next 12 months, said Standard and Poor's on Tuesday, which raised Chrysler's outlook to "positive" from "stable."
S&P changed its outlook to positive despite Monday's reporting by Chrysler of a 65 percent fall in first quarter profit.
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Chrysler's corporate credit rating of B+ was unchanged and it could rise if its stand-alone performance continues to improve, S&P said, and if the credit rating of its majority owner, Fiat SpA remains at BB-.
"The outlook revision reflects our expectation that Chrysler will continue to grow revenue and improve profitability, in spite of weaker first-quarter results, which were hurt by product launches, and assuming a continuation in the North American light vehicle industry recovery," S&P said.
On Monday, Chrysler Group reported first quarter net profit of $166 million, down from $473 million a year ago.
Chrysler went through a government-sponsored bankruptcy in 2009 that included management control by Fiat.
"Fiat's involvement is a positive factor in our business risk assessment for Chrysler," S&P said.
While S&P credits Fiat for its management and product integration with Chrysler as making the American company more credit worthy, it has been Chrysler's improving sales in the strengthening North American market that has helped Fiat avoid financial losses despite an extremely weak European auto market in the past several years.
At B+, Chrysler remains four notches below an investment grade credit rating. Fiat's S&P rating of BB- is three levels below investment grade.
Fiat owns 58.5 percent of Chrysler, with the rest owned by a United Auto Workers' retiree healthcare trust, which is a voluntary employees beneficiary association, or VEBA.
Fiat is attempting to buy VEBA's portion of Chrysler. If it is successful acquiring all of Chrysler, there would be downward pressure on Fiat's credit rating, S&P said.
(Reporting by Bernie Woodall; Editing by Chizu Nomiyama)