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Rating Action:

Moody's downgrades Peugeot to B1; outlook stable

11 Apr 2013

Approximately EUR5.6 billion of debt affected

Frankfurt am Main, April 11, 2013 -- Moody's Investors Service has today downgraded by one notch to B1 from Ba3 the ratings of Peugeot S.A. (PSA) and its rated subsidiary GIE PSA Trésorerie (GIE). This concludes the review initiated by Moody's on February 15, 2013. The outlook on the ratings is now stable.

"We have downgraded PSA's rating in response to its worse-than-anticipated financial performance in FY2012, particularly due to greater-than-expected losses in its automobile division, negative free cash flow from industrial operations and ongoing challenges to restructure its automotive operations," says Falk Frey, a Moody's Senior Vice President and lead analyst for PSA.

RATINGS RATIONALE

RATIONALE FOR DOWNGRADE

Today's rating action reflects PSA's materially worse-than-anticipated financial performance in FY2012, in particular with regard to operating losses in the company's automobile division and the negative free cash flow (FCF) from industrial operations. Moreover, PSA continues to experience challenges in successfully restructuring and turning around the operating performance of its automotive operations against the background of a European market environment that continues to worsen and is characterised by historically high discount levels, especially in the small and medium-sized passenger car segments. "Unless Western European market demand recovers strongly in 2014 from anticipated 2013 levels, PSA may be forced to undertake further cost-saving measures beyond the announced restructuring plan in order to achieve its target of break-even operating cash flow by year-end 2014," adds Mr. Frey.

PSA's financial and operating results for FY2012 were well below Moody's expectations. Impacted by the erosion of Western European light vehicle demand (-8.4% in 2012 compared to 2011), the automotive division reported a recurring operating loss of -EUR1.5 billion, which resulted in a recurring operating loss of the industrial divisions (including a positive +EUR514 million contribution from Faurecia and +EUR23 million from others) of -EUR967 million compared with Moody's expectation of no greater than -EUR500 million. PSA reported negative operating FCF without exceptional and restructuring items of -EUR2.966 million, exceeding Moody's initial expectation of approximately -EUR2.4 billion.

Despite the introduction of the new model 208 and some other additional new cars, PSA has been unable to limit further decline in its passenger car market share in Western Europe (EU15+EFTA countries), with its share dropping to 11.9% in 2012 from 12.6% in 2011. That being said, some of the reduction is due to PSA's unfavourable exposure to Southern European markets.

Moody's does not anticipate a material improvement in the operating performance of the automotive division in 2013 and, as a result, expects that PSA will again record a recurring operating loss of around EUR1.5 billion for the year. This expectation is exposed to further downside risk, if market demand in Western Europe declines by more than the currently anticipated 5% or pricing pressure increases any further. Although negative operating FCF should be halved compared to 2012's consumption of nearly EUR3.0 billion, the payment of restructuring measures during the year will result in additional cash outflows.

The B1 rating with stable outlook incorporate Moody's expectation that PSA's operating and financial performance will begin to gradually improve in late 2013, with the company reaching break-even in group operational free cash flow by end 2014. Factors supporting this expectation include the aging of the automotive fleet in Europe, which should eventually support a rebound in unit sales, and a new product pipeline that shows promise for halting the erosion of market share by the beginning of 2014. The refresh of the C4 Picasso and 308 and a new cross-over derivative from the new 208 (2008) are expected to represent approximately 20% of global volume sales in 2014. Moreover, the company is likely to increase its emphasis on brand differentiation across the various Peugeot and Citroen platforms.

RATIONALE FOR THE STABLE OUTLOOK

The stable outlook reflects Moody's expectation that PSA will execute its restructuring programme on time and successfully and that its adequate liquidity profile will ensure that PSA will accommodate the difficult reorganisation period and the substantial cash outflow from operations over the next 12-15 months. The rating agency assumes that PSA will continue its prudent approach to preserve sufficient liquidity. Furthermore, the stable outlook includes Moody's expectation of stabilising market shares in Western Europe over the course of 2013 based on a continued flow of new model launches.

WHAT COULD CHANGE THE RATINGS DOWN/UP

Moody's anticipates rating stability over the coming 12 months, however, the following factors could cause the rating to be downgraded: (1) cash outflow (including restructuring) exceeding EUR2 billion in 2013 and a failure to achieve break-even operating FCF by year-end 2014; (2) a failure to maintain market shares, despite a high number of important new model introductions over the course of 2013; (3) evidence that liquidity would weaken materially beyond current expectations; and (4) signs that the turn-around expected to begin in early 2014 will be delayed or weaker than expected.

The rating is unlikely to be upgraded in the foreseeable future given Moody's expectations for poor results in 2013 and continuing broad weakness in the company's core European automobile market. However, the ratings could come under upward pressure in case of a faster-than-anticipated and sustained recovery in the operating performance and cash generation of PSA's automotive business. This recovery would be reflected by positive operating profits in the industrial business in 2013, with profitability improving to a positive EBIT margin by 2014 and beyond.

LIQUIDITY

Moody's notes that PSA currently maintains an adequate liquidity position, which provides the company with a sufficient period of time to reverse negative performance trends. At year-end 2012, PSA's principal liquidity sources for its industrial business consisted of (1) cash and cash equivalents on the balance sheet amounting to EUR5.4 billion; (2) availability under undrawn committed credit lines of EUR2.4 billion maturing July 2015 (excluding additional headroom of EUR600 million under Faurecia's facility); (3) financial assets of EUR1.5 billion less some haircuts; and (4) potential cash flow generation from operations over the next 12 months. Together with the recent bond issue in March providing an additional EUR1.0 billion in cash, these cash sources provide adequate coverage for PSA's major liquidity requirements that could arise during the next 12 months. These requirements 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 (PSA), and on-lending to its operating subsidiaries via GIE PSA Trésorerie. Based on a cash-pooling agreement between PSA and GIE, all operating subsidiaries' payment obligations to GIE rank pari-passu with trade payables at the subsidiaries' level. In addition, Moody's understands that, over the near future , PSA will put in place a guarantee by GIE that will benefit PSA bondholders. In the absence of such a guarantee, the bonds at the PSA level might be rated one notch lower (at B2) than the rating for bonds issued by GIE.

PRINCIPAL METHODOLOGY

The principal methodology used in this rating was the Global Automobile Manufacture Industry published in June 2011. Other methodologies used include 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. The group's other industrial operations include Faurecia, one of Europe's leading automotive suppliers in which PSA holds a 57% interest. The group also provides financing to dealers and end-customers through its wholly owned finance subsidiary, Banque PSA Finance. In 2012, PSA generated revenues of EUR54 billion.

REGULATORY DISCLOSURES

For ratings issued on a program, series or category/class of debt, this announcement provides certain 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 certain 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 certain 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.

For any affected securities or rated entities receiving direct credit support from the primary entity(ies) of this rating action, and whose ratings may change as a result of this rating action, the associated regulatory disclosures will be those of the guarantor entity. Exceptions to this approach exist for the following disclosures, if applicable to jurisdiction: Ancillary Services, Disclosure to rated entity, Disclosure from rated entity.

Please see www.moodys.com for any updates on changes to the lead rating analyst and to the Moody's legal entity that has issued the rating.

Please see the ratings tab on the issuer/entity page on www.moodys.com for additional regulatory disclosures for each credit 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 B1; outlook stable
No Related Data.
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