Moody’s Downgrades Banque PSA Finance’s Ratings

Moody’s cut the standalone financial rating of the unit, Banque PSA Finance, by one notch to Ba1, below investment grade, from Baa3, and said the outlook was “stable.”

In October, the unit received a promise of €7 billion, or $9.2 billion, in credit guarantees from the French government, aid that is under review by the European competition authorities in Brussels. Without that support, which ensures the carmaker can provide buyers and dealers with the credit they need to purchase new cars, Peugeot would be unable to compete with its better-rated rivals, including Volkswagen, amid the worst slump in European auto sales in decades.

Standard Poor’s and Fitch Ratings already rate the Peugeot bank as junk, and investors were unmoved by the news Tuesday; the parent company’s shares edged up 0.43 percent by the close of trading in Paris.

The rating on €1.2 billion of debt backed by the government was unaffected by the downgrade Tuesday, Moody’s said.

Peugeot, the second-largest European automaker after VW, has more manufacturing capacity than it can profitably employ. It posted a 2012 annual loss of €5 billion, mainly after writing down the value of its automotive assets, while revenue slid 5.2 percent, to €58.4 billion.

The company’s sales in the 27-nation European Union fell 14.8 percent in the first two months of 2013 from a year earlier, outpacing the 9.5 percent in the overall market. That has left it burning cash and seeking to diversify outside of the region.

The cut on Tuesday became inevitable after Moody’s on Thursday downgraded the parent company by one step to B1 from Ba3, two notches below the finance unit. The agency pointed to “worse-than-anticipated financial performance,” as well as “negative free cash flow from industrial operations and ongoing challenges to restructure its automotive operations.”

The company has announced a plan to reduce its domestic work force by about 11,200 employees, or 17 percent of the total, in part by shuttering a plant at Aulnay-sous-Bois, near Paris.

So far, opposition from unions, including court challenges, has delayed its plans.

Cécile Damide, a spokeswoman for Peugeot, noted that the downgrade Tuesday had “automatically followed” the parent company’s ratings cut last week. The fact that Moody’s has a “stable” outlook on the rating shows the agency’s confidence that Peugeot’s restructuring will succeed, she added.

Article source: http://www.nytimes.com/2013/04/17/business/global/moodys-downgrades-banque-psa-finances-ratings.html?partner=rss&emc=rss