Approximately EUR5.6 billion of debt affected
Frankfurt am Main, July 26, 2012 -- Moody's Investors Service has today downgraded to Ba2 from Ba1 the
ratings of Peugeot S.A. ("PSA") and its rated
subsidiary GIE PSA Trésorérie ("GIE").
The ratings remain on review for further downgrade. The ratings
were initially placed under review for downgrade on 13 July 2012.
Downgrades:
..Issuer: GIE PSA Tresorerie
....Senior Unsecured Regular Bond/Debenture,
Downgraded to Ba2, LGD4, 52% from Ba1, LGD4,
51%
....Senior Unsecured Regular Bond/Debenture,
Downgraded to Ba2, LGD4, 52% from Ba1, LGD4,
51%
..Issuer: Peugeot S.A.
.... Probability of Default Rating,
Downgraded to Ba2 from Ba1
.... Corporate Family Rating, Downgraded
to Ba2 from Ba1
....Senior Unsecured Conv./Exch.
Bond/Debenture, Downgraded to Ba2, LGD4, 52%
from Ba1, LGD4, 51%
....Senior Unsecured Conv./Exch.
Bond/Debenture, Downgraded to Ba2, LGD4, 52%
from Ba1, LGD4, 51%
....Senior Unsecured Medium-Term Note
Program, Downgraded to (P)Ba2 from (P)Ba1
....Senior Unsecured Regular Bond/Debenture,
Downgraded to a range of Ba1, LGD4, 52 % from a range
of Ba1, LGD4, 51 %
....Senior Unsecured Regular Bond/Debenture,
Downgraded to a range of Ba1, LGD4, 52 % from a range
of Ba1, LGD4, 51 %
RATINGS RATIONALE
RATIONALE FOR DOWNGRADE
"The decision to downgrade PSA's ratings to Ba2 reflects the
material deterioration in the already weak capacity utilisation of the
company's European plants in H1 2012, which has resulted in
a high cash burn rate of EUR200 million per month since mid-2011
and a recurring operating loss at the automotive division of EUR662 million,"
says Falk Frey, a Moody's Senior Vice President and lead analyst
for PSA. "The downgrade and continuing review also take into
account the fact that PSA is unlikely to return to break-even operating
cash flow before late 2014, even if it is successful in implementing
the announced reorganisation of its French production base along with
additional cost-saving measures," explains Mr.
Frey.
PSA faces significant challenges in its efforts to turn around its loss-making
automotive business and to reduce the currently high cash burn within
its operations by implementing announced initiatives to reduce fixed costs
and adjust capacities. These challenges are exacerbated by a worsening
market environment in PSA's key European markets, with declining
car demand and rising price pressure, especially in the small car
segments.
Moody's believes that PSA faces intensified operational stress,
with financial metrics that are anticipated to be commensurate with the
single-B rating category by year-end and are unlikely to
recover beyond the low to mid-Ba range over the next two years.
Due to operating losses and an unsustainably high cash burn from its automotive
operations, PSA has failed to meet Moody's expectations for
the previous rating category. For H1 2012, PSA reported negative
free cash flow in the industrial business of EUR449 million, which
was positively impacted by the cash inflow from real-estate disposals
and dividends received from group companies of EUR873 million.
Net income for the group was negative EUR819 million over the same period.
For H2 2012, Moody's anticipates results to be impacted by
the accounting for restructuring provisions for the announced plant reorganisation,
with most of the cash outflow to occur in 2013. Moody's expects
reported recurring operating income of the automotive division to remain
negative in 2013 before turning into positive territory in 2014,
which assumes timely implementation of the recently announced restructuring
plan.
PSA has undertaken various initiatives aimed at improving its competitive
positioning and operating performance, as well as asset disposals
to improve its balance sheet. Those initiatives include (i) the
reorganisation of its production base in France; (ii) a special dividend
payout from its captive subsidiary Banque PSA Finance; (iii) the
sale and lease-back of properties for approximately EUR500 million
of cash proceeds; (iv) the sale of a stake in its logistics company
Gefco for a cash consideration of more than EUR500 million; (v) a
capital increase of EUR1.1 billion underwritten by a pool of banks;
as well as (vi) a strategic alliance with General Motors ("GM",
rated Ba1/positive), which is structured around sharing selected
vehicle platforms, components and modules as well as a global purchasing
joint venture.
The anticipated cash inflow from the asset disposals was intended to provide
the resources and time that would allow PSA to implement the necessary
operational and structural measures to turn around the core automotive
business over the medium term.
While the announced alliance with GM might result in medium to long-term
cost savings, especially in the areas of purchasing and research
and development expenses, Moody's cautions that upfront expenses
will negatively impact PSA's results in the short term. Moody's
also notes that a number of past mergers and alliances in the automotive
industry have very rarely achieved the anticipated competitive advantages
and improved performance.
FOCUS OF THE REVIEW FOR DOWNGRADE
The review for further downgrade will assess (i) the potential for further
actions by the group to stabilise its operations and to ensure its refinancing
position; (ii) an evaluation of the impact of the new programme announced
by the French government to support the auto sector; and (iii) a
detailed review of the companies published half year results. Further
downgrade at the conclusion of the review would likely be limited to one
notch.
WHAT COULD MOVE THE RATING UP/DOWN
The review for downgrade is likely to conclude with a downgrade by one
notch unless (i) further actions to stabilise the operations are taken
by the company; (ii) the French government plans to support low emission
vehicles; or (iii) a more detailed assessment of the company's
prospects, causes Moody's to believe that the stabilisation
and turn around will be accelerated.
Given the continuing review for downgrade, an upgrade of PSA's
ratings is unlikely over the short to medium term.
Moody's notes that PSA currently maintains an adequate liquidity
position, which provides the company with a period of time to execute
a turn-around in its performance. At the end of June 2012,
PSA's principal liquidity sources for its industrial business consisted
of cash on balance sheet in the amount of EUR7.5 billion,
availability under undrawn committed credit lines of EUR2.4 billion
maturing July 2015 (excluding additional headroom of EUR0.6 billion
under Faurecia's facility), as well as potential cash-flow
generation from operations over the next 12 months. These cash
sources provide adequate coverage for the major liquidity requirements
that could arise during the next 12 months. These consist of short-term
debt maturities, capital expenditures, working capital funding
and day-to-day operating needs.
STRUCTURAL CONSIDERATIONS
Peugeot's funding policy is based on borrowing at the holding company
level (Peugeot S.A.), and on-lending to its
operating subsidiaries via GIE PSA Trésorérie. Based
on a cash pooling agreement between Peugeot S.A. and GIE,
all payment obligations of the operating subsidiaries towards GIE rank
pari-passu with trade payables at the subsidiaries' level.
In addition Moody's understands that PSA is in the process of putting
in place a guarantee by the GIE to the benefit of the bondholders of PSA.
Therefore, the ratings of PSA's outstanding notes and bonds
are not notched below the group's CFR according to Moody's
Loss Given Default Methodology.
RATING METHODOLOGY USED
The methodologies used in these ratings were Global Automobile Manufacture
Industry published in June 2011, and Loss Given Default for Speculative-Grade
Non-Financial Companies in the U.S., Canada
and EMEA published in June 2009. Please see the Credit Policy page
on www.moodys.com for a copy of these methodologies.
Peugeot S.A., headquartered in Paris, is Europe's
second-largest maker of light vehicles with its two main brands
Peugeot and Citroën. Other industrial operations include Faurecia,
one of Europe's leading automotive suppliers in which PSA held a
57.43% interest at year-end 2010, and Gefco,
France's second-largest transportation and logistics service
provider. The group also provides financing to dealers and end-customers
through its wholly owned finance subsidiary, Banque PSA Finance.
In 2011, the group generated revenues of EUR59.9 billion
and operating income of EUR0.9 billion.
REGULATORY DISCLOSURES
For ratings issued on a program, series or category/class of debt,
this announcement provides relevant regulatory disclosures in relation
to each rating of a subsequently issued bond or note of the same series
or category/class of debt or pursuant to a program for which the ratings
are derived exclusively from existing ratings in accordance with Moody's
rating practices. For ratings issued on a support provider,
this announcement provides relevant regulatory disclosures in relation
to the rating action on the support provider and in relation to each particular
rating action for securities that derive their credit ratings from the
support provider's credit rating. For provisional ratings,
this announcement provides relevant regulatory disclosures in relation
to the provisional rating assigned, and in relation to a definitive
rating that may be assigned subsequent to the final issuance of the debt,
in each case where the transaction structure and terms have not changed
prior to the assignment of the definitive rating in a manner that would
have affected the rating. For further information please see the
ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.
The ratings have been disclosed to the rated entities or their designated
agent(s) and issued with no amendment resulting from that disclosure.
Information sources used to prepare each of the ratings are the following:
parties involved in the ratings, public information, and confidential
and proprietary Moody's Investors Service information.
Moody's considers the quality of information available on the rated
entities, obligations or credits satisfactory for the purposes of
issuing these ratings.
Moody's adopts all necessary measures so that the information it
uses in assigning the ratings is of sufficient quality and from sources
Moody's considers to be reliable including, when appropriate,
independent third-party sources. However, Moody's
is not an auditor and cannot in every instance independently verify or
validate information received in the rating process.
Peugeot S.A. has received a Rating Assessment Service within
the last two years preceding the Credit Rating Action.
Moody's Investors Service may have provided Ancillary or Other Permissible
Service(s) to the rated entities or their related third parties within
the two years preceding the credit rating action. Please see the
special report "Ancillary or other permissible services provided
to entities rated by MIS's EU credit rating agencies" on the
ratings disclosure page on our website www.moodys.com for
further information.
o
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for the last rating action and the rating history.
The date on which some ratings were first released goes back to a time
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the lead rating analyst and to the Moody's legal entity that has issued
the rating.
Falk Frey
Senior Vice President
Corporate Finance Group
Moody's Deutschland GmbH
An der Welle 5
Frankfurt am Main 60322
Germany
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454
Eric de Bodard
MD - Corporate Finance
Corporate Finance Group
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454
Releasing Office:
Moody's Deutschland GmbH
An der Welle 5
Frankfurt am Main 60322
Germany
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454
Moody's downgrades Peugeot to Ba2; remains on review for downgrade
