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Rating Action:

Moody's places Peugeot's Ba3 ratings on review for downgrade

Global Credit Research - 15 Feb 2013

Frankfurt am Main, February 15, 2013 -- Moody's Investors Service has today placed the Ba3 ratings for PSA Peugeot-Citroën and its guaranteed subsidiaries (PSA) on review for downgrade.

"We are placing PSA's ratings on review for downgrade because the group reported preliminary results for the full year 2012 which fell short of Moody's previous expectations due to the challenging automotive market in Europe," says Rainer Neidnig, a Moody's Vice President - Senior Analyst.

RATINGS RATIONALE

Today's rating action was triggered by PSA's weaker-than-expected preliminary financial and operating results for the full year 2012 as a result of the continued challenging operating conditions in the European automotive market, which suffers from weak demand and high price competition.

The review for downgrade of PSA's Ba3 rating reflects (1) the group's weak operating performance, evidenced by a 17% decline in its global unit sales in 2012 compared with the previous year (including completely knocked down vehicles) and an operating loss before restructuring charges and impairments of -EUR576 million (including the EUR391 million operating profit of PSA's financial services business); (2) negative free cash flow of EUR3.3 billion before asset disposals, equity raised and cash flow generated by PSA's financial services business; and (3) the challenge the group faces in successfully turning around its operating and financial performance in a continued challenging market environment.

Moody's notes that the ratings of the bonds without any notching continues to assume that PSA will put in place a guarantee by GIE PSA Trésorerie that will benefit PSA bondholders.

Should the review be concluded with a downgrade, this would likely be limited to one notch.

FOCUS OF THE REVIEW

The focus of Moody's rating review will be (1) a detailed analysis of PSA's 2012 results; (2) the progress of PSA's restructuring efforts; and (3) a reassessment of Moody's expectations for the group's performance over the next several years, including free cash flow generation.

Moody's review of the rating will also consider measures being taken by PSA to adjust costs, upcoming product launches and the group's co-operation with GM, which could result in additional synergies in the medium to longer term. Moody's notes that PSA managed to maintain reported net debt on a group basis close to EUR3.1 billion at year-end 2012 by successfully executing asset disposals, raising additional equity and making substantial progress in its previously announced cost reduction plan. Moreover, PSA says that its restructuring efforts are on track and that it aims to (1) halve its cash burn in 2013 compared with 2012; and (2) achieve positive free cash flow by the end of 2014.

WHAT COULD CHANGE THE RATINGS DOWN/UP

Moody's could downgrade PSA's ratings if the rating agency concludes that the group's turn-around initiatives are likely to fall short of yielding its targeted results, including a clear path towards break-even operational free cash flow by end 2014. Increasing concerns that PSA will not be able to limit negative free cash flow (excluding restructuring costs) at -EUR1.2 billion in 2013 or a deteriorating liquidity profile could also result in a downgrade. In addition, Moody's could downgrade the ratings if PSA (1) is unable to limit the recurring operating losses before restructuring provisions in its industrial division to EUR500 million or less in 2013; and (2) fails to stabilise its market shares in Europe given the renewal of key volume models.

Moody's considers that an upgrade over the short to medium term is unlikely. However, the ratings could come under upward pressure over the medium term if there were to be 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 a significant improvement in profitability and free cash flow, with a solidly positive EBIT margin and free cash flow by 2014 and beyond.

The principal methodology used in these ratings 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 places Peugeot's Ba3 ratings on review for downgrade
No Related Data.

 

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