Approximately EUR4.8 billion of debt affected
Frankfurt am Main, March 01, 2012 -- Moody's Investor Services has today downgraded to Ba1 from Baa3
the long-term senior unsecured ratings and to Not-Prime
from Prime-3 the short term senior unsecured ratings of Peugeot
S.A. ("Peugeot", "PSA") and
it rated subsidiary GIE PSA Trésorerie ("GIE").
Simultaneously, Moody's assigned Peugeot S.A.
a corporate family rating (CFR) and a probability of default rating of
Ba1. This concludes Moody's review for possible downgrade
initiated February 15, 2012. The outlook is negative.
Downgrades:
..Issuer: GIE PSA Tresorerie
....Senior Unsecured Commercial Paper,
Downgraded to NP from P-3
....Senior Unsecured Regular Bond/Debenture,
Downgraded to Ba1 from Baa3
..Issuer: Peugeot S.A.
....Senior Unsecured Conv./Exch.
Bond/Debenture, Downgraded to Ba1 from Baa3
....Senior Unsecured Medium-Term Note
Program, Downgraded to (P)Ba1, (P)NP from (P)Baa3, (P)P-3
....Senior Unsecured Medium-Term Note
Program, Downgraded to (P)Ba1, (P)NP from (P)Baa3, (P)P-3
....Senior Unsecured Regular Bond/Debenture,
Downgraded to Ba1 from Baa3
Assignments:
..Issuer: GIE PSA Tresorerie
....Senior Unsecured Regular Bond/Debenture,
Assigned LGD4, 51%
..Issuer: Peugeot S.A.
.... Probability of Default Rating,
Assigned Ba1
.... Corporate Family Rating, Assigned
Ba1
....Senior Unsecured Conv./Exch.
Bond/Debenture, Assigned LGD4, 51%
....Senior Unsecured Regular Bond/Debenture,
Assigned 51 - LGD4, LGD4, 51 %
Outlook Actions:
..Issuer: GIE PSA Tresorerie
....Outlook, Changed To Negative From
Rating Under Review
..Issuer: Peugeot S.A.
....Outlook, Changed To Negative From
Rating Under Review
Withdrawals:
..Issuer: Peugeot S.A.
.... Issuer Rating, Withdrawn,
previously rated P-3, Baa3
.... Issuer Rating, Withdrawn,
previously rated P-3, Baa3
RATINGS RATIONALE
"The downgrade of PSA reflects Peugeot's fiscal year 2011
results which have been well below Moody's expectations, in
particular the reported negative free cash flow of more than EUR1.6
billion and the significant rise in the company's reported Industrial
and Commercial net debt to EUR3.4 billion from EUR1.2 billion
at the end of the previous year" said Falk Frey, a Moody's
Senior Vice President and lead analyst for PSA. "The downgrade
further incorporates PSA's challenges to improve its financial metrics
over the short to medium term following a severe deterioration in 2011,
and more important to turn around its loss making core automotive business
by new model introductions, additional cost savings measures,
an improvement of its European capacity utilization rates, further
success of its brand upscaling strategy as well as the ability to generate
profits from its outside European operations in Latin America and Russia,"
Frey added.
Though Moody's recognizes that the announced management initiatives,
including the capital increase, will provide the company some time
to implement operational improvement measures and reap some benefits,
the negative outlook reflects the risks of a more negative light vehicle
demand in Europe, and especially in PSA's core markets France,
Spain and Italy, and/or more negative pricing development than currently
anticipated which would result in the company's inability to achieve
the anticipated improvement in its operating results. The negative
outlook also incorporates the challenges to implement and timely execute
the announced action plan in order to adequately adjust the company's
cost structure as well as the challenge to better utilize existing capacities
in Europe.
Peugeot's performance continues to be highly reliant on several
European markets, such as France, Spain and Italy.
In these markets PSA is facing considerable challenges due to declining
demand leading to intensifying price pressure in its key product segments,
such as the A and B segments for small cars like the Peugeot 107 and 207,
and with parts of its model range still to be renewed. Moody's
anticipates this environment to worsen with regard to a declining European
light vehicle market in 2012. While we expect light vehicle sales
in Western Europe to shrink by 6% in 2012, we anticipate
two of PSA's key markets, France and Italy, are to decline
more than the overall European demand i.e. by 10%
and 7% respectively. We currently anticipate a recovery
in Western European light vehicle sales in 2013 with an annual growth
of 3%.
Peugeot has announced various initiatives to mitigate these challenges,
improve its competitive positioning and operating performance as well
as asset disposals to improve its balance sheet. Those initiatives
include, among others (i) the sale of CITER (closed in February
2012) leading to a reduction in net debt of approx. EUR400 million;
(ii) sales and lease back of properties for approximately EUR500 million
cash income; (iii) sale of a major stake in its logistics company
Gefco for a cash consideration of more than EUR500 million; (iv)
a capital increase of EUR1.0 billion underwritten by a syndicate
of banks as well as (v) a strategic alliance with General Motors ("GM"
rated Ba1/positive) 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 should help to provide
the resources and time for PSA to implement and execute the necessary
operational and structural measures that would enable the company to turn
around the core automotive business over the medium term. However,
we believe that PSA faces tremendous operational stress with financial
metrics being currently below the Ba1 rating category with further deterioration
anticipated in the current year. While cash inflow from the implementation
of the various measures will lead to a reduced leverage by the end of
2012 onwards, indicators of operating performance e.g.
EBIT margins, asset returns, retained cash flows and free
cash flows remain at levels not sustainable for the Ba1 rating category
over the period 2012-13.
While the announced alliance with GM should result in cost savings especially
in the area of purchasing and research and development expenses over the
medium to long-term, Moody's cautions that upfront
expenses will negatively impact PSA's results in the short term.
Also Moody's notes that past mergers and alliances in the automotive
industry have often not resulted in the anticipated competitive advantage
and improved performance.
PSA's rating continues to be supported by (i) the group's
sound competitive position in its markets, in terms of volumes ranking
behind market leader Volkswagen (A3/positive) in the European light vehicle
segment, (ii) a balanced model renewal rate, and (iii) various
successful cooperation agreements with a number of different OEMs.
A successful implementation of Citroen's premium DS line could improve
the brand's positioning and could mitigate the intense pricing pressure
being characteristic for the volume segments in the future. In
addition, the rating considers the group's conservative financial
policy with a healthy liquidity profile and balanced debt maturity profile.
However, the rating remains constrained by the group's limited
geographic diversification with the vast majority of its revenues and
profits being generated in Western Europe. Although we acknowledge
the strategy to improve the company's global footprint, it
will take time for such initiatives to yield significant results.
This makes the group vulnerable in the meantime to declining passenger
car demand in Western Europe, in particular in key markets for PSA
like France, Spain, Italy and UK. In addition,
2011 results have been positively affected by strong profits generated
at Faurecia, an auto supplier which is 57% owned, and
therefore fully consolidated by PSA. As Faurecia has its own financing
arrangements, access of PSA to Faurecia's profits is only
possible via dividend payments, which we do not anticipate to be
significant going forward.
Moody's cautions about the risk that pressure from rising R&D
needs, intense price competition in Europe, and increased
raw material costs might further magnify the structural problems Peugeot
is facing currently.
WHAT COULD MOVE THE RATING UP/DOWN
The ratings could be downgraded in case of failure to (i) regain part
of the market share losses in Europe by the replacement of the ageing
B-segment line or (ii) execute on the announced asset disposals
(sale and leaseback of properties, sales of a stake in Gefco) targeted
to lead to a EUR1.0 billion cash inflow.
A downgrade could also be triggered in case the company would be unable
to materially improve its operating performance or evidence a strong recovery
of its credit metrics. By 2013 we would expect PSA to achieve net
debt to ebitda below 2.0x, cash to debt of at least in the
30-40 % range (all ratios are based on a Moody's adjusted
basis). In addition lack of visibility in the short term of a path
to metrics improvement would also create strong negative pressure;
meaning for 2012 deviation from our base case scenario i.e.
(a) adjusted EBIT loss of no more than EUR100 million -- before exceptional
cost -; (b) Net Debt/EBITDA below 2.5x in 2012 and
a cash burn (negative free cash flow as defined by Moody's) of no
more than EU250 million.
Un upgrade of the ratings is unlikely over the short to medium term.
However, a sustainable turn- around of the operating profit
in the Automotive Division with margins between 2-4% and
a sustainable positive free cash flow generation could result in an upgrade.
PSA's principal liquidity sources for its industrial business as
of December 30, 2011 consisted of cash on balance sheet in the amount
of EUR5.2 billion, availability under undrawn committed credit
lines of EUR2.4 billion maturing July 2014 (excluding an 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 as of year-end
2011 of approximately EUR2.2 billion, capital expenditures,
working capital funding and day-to-day needs.
The rating positioning assumes that the company will maintain a conservative
liquidity profile.
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 Trésorerie. Based on
a cash pooling agreement between Peugeot S.A., the
major operating companies and the GIE all payment obligations of the operating
subsidiaries towards the GIE rank pari-passu with trade payables
at the subsidiaries' level. This together with a capital
structure that is of an investment grade rated type of credit resulted
in the ratings of PSA's outstanding notes and bonds not being notched
below the group's CFR according to Moody's Loss Given Default
Methodology.
The principal methodology used in rating Peugeot was the Global Automobile
Manufacture Industry Methodology 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. 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 rating has been disclosed to the rated entity or its designated agent(s)
and issued with no amendment resulting from that disclosure.
Information sources used to prepare the rating are the following :
parties involved in the ratings, public information, confidential
and proprietary Moody's Investors Service information, and
confidential and proprietary Moody's Analytics information.
Moody's considers the quality of information available on the rated
entity, obligation or credit satisfactory for the purposes of issuing
a rating.
Moody's adopts all necessary measures so that the information it
uses in assigning a rating 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.
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Service(s) to the rated entity or its related third parties within the
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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
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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 Ba1, outlook negative.
