Bloomberg News

Peugeot Leads Drop in Junk Debt as Seat Pagine Extends Decline

January 30, 2013

PSA Peugeot Citroen bonds led declines in European junk-rated securities after the company was ordered to halt restructuring plans while car workers strike over job losses.

Peugeot’s 6 percent bonds due 2033 dropped 3 percent to 83.96 cents on the euro at 10:59 a.m. in London and have lost 8 percent this week, according to data compiled by Bloomberg, the biggest weekly decline since December 2008. Bonds of Seat Pagine Gialle SpA (PG), Italy’s largest directory publisher, extended losses after the company suspended a coupon payment.

French auto workers are striking as Peugeot and Renault SA (RNO) seek to eliminate 18,700 jobs, about 17 percent of their workforces, as sales slump for a sixth year. Peugeot’s banking unit completed about 5.3 billion euros ($7.1 billion) in loan agreements Jan. 14 as part of a refinancing plan aimed at stemming the effects of a sales drop.

“The restructuring is a good step towards improving profitability as excess capacity in France has been a problem for many years,” said Peter Kwaak, a fund manager at Robeco Groep NV in Rotterdam, who oversees 12 billion euros in corporate bonds. “But such a process is always difficult, especially in France.”

Credit-default swaps protecting Peugeot’s debt for five years rose 41 basis points this week to 723, the highest since Nov. 30.

Renault Bonds

Renault’s 4.625 percent bonds due 2017 fell 0.2 percent to 101.68 euro cents, Bloomberg data show. French autoparts maker Faurecia (EO) SA’s 9.375 percent notes due 2016 dropped 0.6 percent to 112.65 euro cents, the lowest since November 21. The company is 57 percent-owned by Peugeot.

Seat Pagine’s 10.5 percent notes due 2017 declined 0.2 percent to 39 euro cents, after dropping 31 percent yesterday, Bloomberg data show. The company said it’s going to suspend a 42 million-euro coupon payment on senior secured bonds as it reviews its business plan.

Bondholders accepted a 1.28 billion-euro debt-for-equity swap last march and credit-default swaps linked to Seat Pagine’s debt were settled at an auction in December 2011 after a failure-to-pay credit event.

In the new issue market, Hellenic Telecommunications Organization SA (HTO) is selling the lowest-rated bonds from a company in Europe’s periphery in at least seven years, data compiled by Bloomberg show. It will price five-year benchmark bonds in euros to yield 8 percent to 8.25 percent, a person with knowledge of the deal said.

Credit Derivatives

The company has a Caa1 rating from Moody’s Investors Service, seven steps below investment grade. Speculative-grade, or junk, debt is rated below Baa3 by Moody’s Investors Service and BBB- by Fitch and Standard & Poor’s.

In derivatives markets, the Markit iTraxx Crossover Index of credit-default swaps on 50 companies with mostly high-yield ratings rose four basis points to 436. The Markit iTraxx Europe Index of 125 companies with investment-grade ratings added 1.5 basis points to 110.

The Markit iTraxx Financial Index of swaps on 25 banks and insurers was up two at 142.

A basis point on a credit-default swap protecting 10 million euros of debt from default for five years is equivalent to 1,000 euros a year. Swaps pay the buyer face value in exchange for the underlying securities or the cash equivalent should a borrower fail to adhere to its debt agreements.

For Related News and Information:

To contact the reporter on this story: Hannah Benjamin in London at hbenjamin1@bloomberg.net

To contact the editor responsible for this story: Paul Armstrong at parmstrong10@bloomberg.net


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