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