MOODY'S ASSIGNS A3 RATING TO SENIOR DEBT OF PEUGEOT S.A. FINANCE SUBSIDIARIES
New York, 12-19-95 -- Moody's Investors Service assigned A3 debt ratings to the senior debt of Banque PSA Finance Holding (PFH), an indirectly wholly-owned finance subsidiary of Peugeot S.A. (PSA Peugeot Citro‰n), and Peugeot Finance International N.V. (PFI), a wholly-owned subsidiary of PFH. The obligations of PFI are unconditionally guaranteed by PFH. These are the first ratings of PSA Peugeot Citro‰n securities that Moody's has assigned. The ratings consider the favorable operating trends of these finance subsidiaries as well as the quality of their portfolio of auto related receivables. The ratings also reflect the underlying credit quality of PSA Peugeot Citro‰n and its implicit support of PFH and PFI under the regulatory environment for financial institutions in France.
The long-term debt ratings assigned are:
Banque PSA Finance Holding - A3 for Euro MTN's,
Peugeot Finance International N.V. - A3 for Euro MTN's, Luxembourg franc denominated Euronotes, and zero coupon bonds.
PSA Peugeot Citro‰n's captive finance operations, which are conducted by PFH and its subsidiaries and affiliates, are an important marketing resource for PSA Peugeot Citro‰n, providing wholesale and retail financing for Peugeot and Citro‰n vehicles in the marketplace. Moody's said that PFH's operating results have been quite stable in recent years, with earnings and assets increasing at a consistent and controllable pace. Asset quality measures have improved steadily due in large part to an intensified focus on portfolio management. Moody's expects that the portfolio quality will remain strong. In addition, PFH's balanced capital structure and liquidity support should provide the company with an added degree of financial flexibility.
According to Moody's, PSA Peugeot Citro‰n has a well developed market position within France, with over 30% of total light vehicle sales, and has been improving its penetration throughout western Europe, where its market share is approximately 12%. These marketing efforts have been supported by an improving product line-up; most models have been renewed within the last four years and Moody's expects that PSA Peugeot Citro‰n will maintain a consistent pace of model renewals and introductions. Further, PSA Peugeot Citro‰n has a well balanced range of vehicles, such that it has limited dependence on any one particular model or segment. A leadership position in diesel engines - a capability of increasing importance in Europe - provides additional support to PSA Peugeot Citro‰n's product offerings.
PSA Peugeot Citro‰n has achieved less success to date outside of its traditional French and western European markets. PSA Peugeot Citro‰n has the lowest percentage of sales outside of western Europe among all the major European manufacturers. Moody's believes that this reliance on a few markets provides PSA Peugeot Citro‰n with less opportunity to exploit above-average growth trends in the developing regions. Further, the French and Spanish markets have benefited from recent government incentive programs which have artificially boosted auto demand. Following termination of these programs (this year in Spain and next year in France), demand is expected to trail other markets. Moody's also believes that despite its improving product position, PSA Peugeot Citro‰n remains vulnerable to increased penetration by Asian manufacturers into Europe.
Moody's said that PSA Peugeot Citro‰n continues to make significant progress in reducing its cost structure, with gains being made particularly in the areas of labor costs and materials sourcing. The automaker has entered into several ventures with other manufacturers (with Renault and Fiat in particular) for joint assembly operations and components manufacturing as a means of improving its cost base; further developments in this regard are expected during the intermediate term. Moody's observed that PSA Peugeot Citro‰n is vulnerable to currency fluctuations due to the imbalance of currency flows in several of the markets in which it operates. Some of the focus of PSA Peugeot Citro‰n's production planning entails improving the currency basis of its cost structure to create a better match with the increasing revenues from markets outside of France.
Moody's also noted that PSA Peugeot Citro‰n has improved the efficiency of its product development process. The group has reduced its capital spending during the last several years while it nevertheless is maintaining a steady flow of new product introductions. Cash flow is adequate to cover investment spending needs, and Moody's believes that PSA Peugeot Citro‰n will not require significant amounts of external funding to support its core automotive operations. The rating agency also noted that unlike other more highly rated auto manufacturers, PSA Peugeot Citro‰n maintains a net debt position in its auto operations. Nevertheless, the ratings acknowledge management's achievements in improving the company's capital structure over the last several years and anticipate the maintenance of relatively strong debt protection measurements over the intermediate term.
Peugeot S.A., headquartered in Paris, France, is a leading European auto manufacturer. Banque PSA Finance Holding, also headquartered in Paris, and Peugeot Finance International N V, headquartered in Rotterdam, The Netherlands, are finance subsidiaries of Peugeot S A.
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