PSA Peugeot Citroen (UG)’s wholly owned bank was cut to one level below investment grade by Moody’s Investors Service, which said the auto-financing unit can’t escape the European car-market contraction plaguing its parent.
The long-term rating on Banque PSA Finance’s debt was lowered by one step to Ba1 from Baa3, Moody’s said in a statement today. The outlook is stable, indicating the rating won’t be reduced again soon.
Peugeot, Europe’s second-largest carmaker, arranged last year for French state guarantees on as much as 7 billion euros ($9.1 billion) of Banque PSA Finance’s new bond sales, as well as 11.5 billion in refinancing, to maintain an investment grade for the unit at Moody’s. The division remains hampered by the vehicle sales drop at Paris-based Peugeot because its lending is restricted to the parent company’s brands, Moody’s said today.
“BPF’s rating is eventually constrained by its lack of business diversification and inherent credit linkages with its lower-rated industrial parent, as its activities are exclusively linked to those of PSA,” Guillaume Lucien-Baugas, an analyst at Moody’s in Paris, said in the statement.
Peugeot rose as much as 1.4 percent to 5.60 euros and was trading up 0.3 percent at 12:21 p.m. in Paris, reversing a decline of as much as 1.3 percent earlier in the day. The stock has gained 1.3 percent this year.
The carmaker’s group sales in France fell 19 percent in the first quarter. The Peugeot brand’s car registrations in Germany, Europe’s biggest economy, plunged 38 percent in the period, while the Citroen nameplate’s sales fell 27 percent. Europe’s car market is likely to shrink a sixth consecutive year in 2013 amid a recession in the region, with Peugeot predicting an industrywide drop of 3 percent to 5 percent.
Peugeot posted a 576 million-euro operating loss last year, when the company consumed an average 200 million euros a month in cash. Its earnings-restoration strategy includes eliminating 11,200 jobs in France, or 17 percent of its domestic workforce, and closing a car factory in Aulnay near Paris.
The carmaker allocated a board seat each to the French state and to labor representatives in return for the guarantees of the banking unit’s bond sales.
The European Union is reviewing the guarantees because of rules limiting state aid to private companies. It granted temporary approval in February to French government coverage of a 1.2 billion-euro debt sale. Those bonds aren’t affected by the downgrade today, Moody’s said.
The separate refinancing from Banque PSA Finance’s lenders includes an agreement in January on a 4.1 billion-euro five-year term loan and an extended 1.2 billion-euro revolving credit line. Peugeot Chief Financial Officer Jean-Baptiste de Chatillon said in March that the bank will begin offering savings accounts to raise funding for dealerships and other automotive operations.
The bank unit’s debt at Standard & Poor’s was cut in February to BB+, also the first junk grade, with a negative outlook. S&P grades Peugeot’s parent-company debt at three levels into junk while Fitch Ratings has it at four levels below investment grade.
Today’s move “is an automatic downgrading,” Pierre- Olivier Salmon, a Peugeot spokesman, said by phone. “Moody’s has put forward several positive elements, such as BPF’s high margins and the increase of its penetration rate. Thanks to the French government guarantee, the refinancing pool and a bank securitization program, BPF is now protected against any further downgrade.”
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