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Rating Action:

Moody's upgrades PSA's ratings to Baa3, stable outlook

28 Mar 2019

Frankfurt am Main, March 28, 2019 -- Moody's Investors Service (Moody's) has today assigned a long-term issuer rating of Baa3 to Peugeot S.A. (PSA). Moody's has upgraded PSA's senior unsecured ratings to Baa3 from Ba1 and its other short term ratings to (P) Prime-3 from (P)NP. Concurrently Moody's has upgraded GIE PSA Tresorerie's senior unsecured rating to Baa3 from Ba1 and its commercial paper to Prime-3 from NP. The outlook has changed to stable from positive.

Moody's has also withdrawn PSA's corporate family rating (CFR) of Ba1 and probability of default rating (PDR) of Ba1-PD following its upgrade to Baa3, as per the rating agency's practice for corporates with investment grade ratings. Moody's has decided to withdraw the ratings for its own business reasons. Please refer to the Moody's Investors Service's Policy for Withdrawal of Credit Ratings, available on its website, www.moodys.com.

A full list of affected entities and ratings can be found at the end of this press release.

RATINGS RATIONALE

Today's rating action reflects the continuous improvement in credit metrics since 2013, leading to a 4.6% Moody's-adjusted EBITA margin (after restructuring), EUR3.0 billion of Moody's-reported free cash flow (after restructuring) and a net cash position of EUR7.5 billion at the end of 2018, a record year for PSA.

The company's belated but successful push into the fast-growing sport utility vehicle segment and its efforts to streamline and refresh its overall product line-up have resulted in increasing market share in Europe, the company's core market, since 2016 (Peugeot Citroen DS or PCD perimeter). The company's deep culture change, striving for operational excellence, has significantly improved the company's cost structure as illustrated by a constantly lowered break-even point at PCD from 2.6 million cars in 2013 to 1.3 million cars in 2018, versus 2.8 million sold in 2018. A more balanced and well filled pipeline together with tight cost control and a significantly lower break-even point provides comfort that PSA will weather more difficult market conditions going forward and retain a financial profile commensurate with its investment grade rating.

By applying PCD's operational efficiency to Opel Vauxhall (OV), PSA succeeded in turning around OV stronger and faster than expected. After 19 years of operating losses and significant cash burn under GM ownership, OV generated for FY 2018, a positive operating profit of around EUR350 million or 2% margin (after restructuring, company definition) and a positive free cash flow of EUR1.3 billion (after restructuring, company definition) mainly driven by a significant release of working capital through efficiency measures. Moody's believes that the acquisition of Opel has strengthened PSA's competitive position in Europe and is an opportunity to leverage PSA's two core platforms with future Opel and Vauxhall models.

The acquisition of OV had a negative impact on PSA's CO2 emissions which increased from 105 g/km (PCD only) to 112 g/km (PCD+OV full year basis) on 2017 fleet. In line with other auto manufacturers, PSA's CO2 emissions deteriorated during 2018 to an estimated 114 g/km because of the adverse trend in diesel sales. Nonetheless, PSA's CEO Carlos Tavares has publicly committed that the company will be able to reach its 93 g/km target by 2020/21 notably thanks to an increasing share of light electrified vehicles (BEV+PHEV) with seven models being launched in 2019 and another eight in 2020, the discontinuation of bad CO2 performers especially at Opel and more efficient ICE vehicles as some OV models are transferred to PCD's platform for example.

In 2018 PSA sold around 400,000 vehicles in the UK (10% of total volume). In case of a disorderly Brexit, PSA benefits from two production facilities, inherited from OV, which could continue to supply the local market.

The European market has been weak in 2018 (-0.4% volume in EU+EFTA according to ACEA) and Moody's expects the volume growth to remain subdued in Europe (+0.4% in 2019, +0.6% in 2020) while Moody's expects negative growth in the US (-2.9% for 2019 after +1.2% in 2018) and slow recovery in China (+2.0% in 2019 after -2.8% in 2018).

STABLE OUTLOOK

The stable outlook anticipates that PSA will be able to maintain its operating profitability around current levels and to maintain its Moody's adjusted Debt/EBITDA ratio well below 3.0x. The stable outlook also anticipates a continuation of PSA's prudent financial policy, healthy liquidity supported by positive free cash flow generation and balanced debt maturity profile.

WHAT COULD CHANGE THE RATINGS UP/DOWN

Upward rating pressure could develop should PSA (1) maintain positive market share trend, enhance its geographical diversification and successfully manage the ramp-up of its electrified pipeline in a context of a tight regulation concerning CO2 emissions, (2) maintain a Moody's-adjusted EBITA margin (after restructuring) well above 5% sustainably, (3) improve Moody's-adjusted debt/EBITDA ratio sustainably below 2x and (4) continuously generate Moody's-adjusted free cash flow (after restructuring) above of EUR500 million annually.

Downward rating pressure could develop should PSA (1) face sustained declining market share, (2) Moody's-adjusted EBITA margin (after restructuring) were to decline sustainably to the mid-single digit in percentage terms, (3) Moodys-adjusted debt/EBITDA ratio were to exceed 3x for a prolonged period of time, (4) free cash flow turned negative for a sustained period of time and/or liquidity profile were to weaken.

LIQUIDITY

PSA's liquidity profile is strong, supported by a cash balance of EUR15 billion as of 31 December 2018, internally generated cash flows and access to committed covenanted syndicated credit facilities of EUR3.0 billion maturing in 2023 with two optional one-year extensions (excluding EUR1.2 billion at Faurecia). These credit facilities were undrawn as of December 2018 and PSA was compliant with the financial covenants included in these credit agreements. These sources are deemed to be more than sufficient to cover the anticipated cash outflows for capital expenditures, maturing debt, working capital needs and restructuring.

LIST OF AFFECTED RATINGS:

..Issuer: Peugeot S.A.

Assignment:

.... LT Issuer Rating, Assigned Baa3

Upgrades:

....BACKED Other Short Term, Upgraded to (P)P-3 from (P)NP

....BACKED Senior Unsecured Medium-Term Note Program, Upgraded to (P)Baa3 from (P)Ba1

....BACKED Senior Unsecured Regular Bond/Debenture, Upgraded to Baa3 from Ba1

Outlook Action:

....Outlook, Changed To Stable From Positive

..Issuer: GIE PSA Tresorerie

Upgrades:

....Commercial Paper, Upgraded to P-3 from NP

....BACKED Senior Unsecured Regular Bond/Debenture, Upgraded to Baa3 from Ba1

Outlook Actions:

....Outlook, Changed To Stable From Positive

PRINCIPAL METHODOLOGY

The principal methodology used in these ratings was Automobile Manufacturer Industry published in June 2017. Please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.

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 credit rating action on the support provider and in relation to each particular credit 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 credit rating action, and whose ratings may change as a result of this credit 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.

Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.

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
Client Service: 44 20 7772 5454

Matthias Hellstern
MD - Corporate Finance
Corporate Finance Group
JOURNALISTS: 44 20 7772 5456
Client Service: 44 20 7772 5454

Releasing Office:
Moody's Deutschland GmbH
An der Welle 5
Frankfurt am Main 60322
Germany
JOURNALISTS: 44 20 7772 5456
Client Service: 44 20 7772 5454

No Related Data.
© 2019 Moody’s Corporation, Moody’s Investors Service, Inc., Moody’s Analytics, Inc. and/or their licensors and affiliates (collectively, “MOODY’S”). All rights reserved.

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