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Moody's Japan K.K. of Moody’s Corp. (MCO - Analyst Report) allotted A1 ratings to the Euro Medium Term Note (EMTN) program notes, which were issued by Honda Motor Co. Ltd.’s (HMC - Analyst Report) wholly-owned subsidiary American Honda Finance Corporation (AHFC). The rating agency has a stable outlook for the same.

The notes rated include $100 billion EMTN programme notes due in Oct 2018 and $30 million EMTN programme notes due in Oct 2018.

The rating agency has assigned the A1 rating based on the automaker’s admirable brand image together with the strong market standing that Honda retains in its core automotive markets. In addition, the company’s strong footing 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.

Recently, Moody's Japan K.K. allotted A1 ratings to the USD Medium Term Notes Program, Series A issued by AHFC. The rating agency has a stable outlook for the same. The notes included $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 “Keep Well Agreement” between Honda and AHFC has improved the credit quality of the notes. Under this agreement, Honda needs to possess a minimum of 80% of AHFC's equity, either directly or indirectly. Meanwhile, AHFC should have a positive tangible net assets balance along with 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.

Currently, Honda retains a Zacks Rank #2 (Buy). In the same industry, Daimler AG (DDAIF) and Fuji Heavy Industries Ltd. (FUJHY) are the other favorably-placed stocks.  Daimler carries a Zacks Rank #1 (Strong Buy) and Fuji has a Zacks Rank #2 (Buy).

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