Bloomberg News

Peugeot Debt Cut to B+ at Fitch on European Auto Market

February 25, 2013

PSA Peugeot Citroen (UG)’s credit rating was cut one step to four levels below investment grade by Fitch Ratings, which said a contraction in Europe’s car market will put the auto manufacturer’s plans to restore cash flow at risk.

Peugeot’s long-term debt was lowered to B+ from BB- with a negative outlook, indicating the credit-rating company may downgrade it again, Tom Chruszcz, an analyst at Fitch in Warsaw, said today in a statement. Fitch also cut Italian carmaker Fiat SpA (F)’s debt by one level to BB- from BB.

“We are concerned by the continuously adverse market environment, notably in Europe,” the region that dominates Peugeot’s sales, and its strategy to reverse losses and cash consumption “may prove long and difficult,” Chruszcz said. Fiat’s plan to take its cars upmarket “will take time and carries significant execution risk,” he said in a separate statement.

Peugeot, Europe’s second-biggest, reported a 576 million- euro ($761 million) operating loss for 2012 as a recession caused industrywide sales in the region to shrink for a fifth consecutive year. Chief Executive Officer Philippe Varin vowed on Feb. 13 to put Paris-based Peugeot on a break-even level by end of 2014 through spending reductions and a new strategy that includes moving its Peugeot brand upscale.

Regional Drop

Car-industry executives are forecasting another decline in their European sales for 2013. Peugeot is predicting a drop of 3 percent to 5 percent in the auto market.

France’s government provided guarantees last year for as much as 7 billion euros of new bond sales by the Banque PSA Finance unit. Peugeot is striving to maintain the division’s investment grade at Moody’s Investors Service, with measures that include refinancing the division’s debt.

Peugeot was “prepared” for a downgrade, Pierre-Olivier Salmon, a spokesman for the carmaker, said today by phone, reiterating a statement from mid-February, when Standard & Poor’s Ratings Services cut Peugeot’s debt by one level and downgraded debt at its banking unit to junk.

“This doesn’t impact the financing conditions of the bank, because its financing is secured over the next three years,” Salmon said.

To contact the reporter on this story: Mathieu Rosemain in Paris at mrosemain@bloomberg.net

To contact the editor responsible for this story: Chad Thomas at cthomas16@bloomberg.net


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