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By clicking “I AGREE” [at the end of this document], you indicate that you understand and intend these terms and conditions to be the legal equivalent of a signed, written contract and equally binding, and that you accept such terms and conditions as a condition of viewing any and all Moody’s inform​ation that becomes accessible to you [after clicking “I AGREE”] (the “Information”).   References herein to “Moody’s” include Moody’s Corporation, Inc. and each of its subsidiaries and affiliates.

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Rating Action:

Moody's upgrades Peugeot's ratings to Ba2; stable outlook

05 Apr 2016

London, 05 April 2016 -- Moody's Investors Service has upgraded to Ba2 from Ba3 the corporate family rating (CFR) and to Ba2-PD from Ba3-PD the probability of default rating (PDR) of Europe's second-largest maker of light vehicles, Peugeot S.A. (Peugeot). Concurrently Moody's has upgraded to Ba2/(P)Ba2 from Ba3/(P)Ba3 Peugeot's and its rated subsidiary GIE PSA Trésorerie's ratings and affirmed the NP/(P)NP ratings. The outlook on all ratings has been changed to stable from positive.

"Today's upgrade of Peugeot's ratings recognises its success in implementing its industrial reconstruction plan, as well as the potential for further improvement in earnings in the next 12-18 months as Peugeot launches new models, takes advantage of the positive business momentum in Western Europe and continues its rationalization efforts,' says Yasmina Serghini, a Moody's Vice President - Senior Credit Officer and lead analyst for Peugeot.

RATINGS RATIONALE

Moody's has upgraded Peugeot's ratings to Ba2 to reflect the successful execution of the company's turnaround strategy, which has supported a meaningful improvement in the company's earnings and cash flow generation since 2014. In particular, Peugeot last year delivered a much improved operating margin of 3.0% (with Moody's adjustments), up from 0.2% in the prior year, also boosted by favourable operating conditions in Western Europe, Peugeot's single largest market.

Outside of Europe, Peugeot has also eliminated or narrowed down its losses in challenged markets such as Brazil and Russia which, if sustained on the back of a large reduction in fixed costs, will help build a more resilient business at times of declining sales volumes.

Moody's expects that Peugeot's margin will increase towards 4% by 2017 on the back of (1) anticipated further demand growth for passenger cars in Western Europe in 2016 and 2017 of 4.7% and 3.1%, respectively, together with (2) Peugeot's continued efforts at improving its pricing power, rationalizing its model range and cost structure and upcoming model launches from late 2016.

Moody's anticipates that by 2017 Peugeot's profitability will narrow the gap in its profit margin relative to some of its global rated competitors such as Renault S.A. (Baa3 stable), General Motors Company (Baa3 senior unsecured bank credit facility/Ba1 senior unsecured, positive) and Ford Motor Company (Baa2 stable).

Peugeot's higher profitability and cash conversion in 2015 translated into stronger debt-protection ratios as evidenced by a Moody's-adjusted (gross) debt/EBITDA ratio of 3.4x (7.3x in 2014), a Moody's-adjusted EBITA/Interest Expense ratio of 1.9x (0.1x) and a Retained Cash Flow (RCF)/debt of 26.9% (7.8%). Moody's expects that a gradual increase in margin will support an incremental improvement in Peugeot's credit metrics in the next 24 months towards 2x leverage and 3.5x interest coverage, a level that will position the company's rating strongly at the Ba2 level. However, Moody's anticipates that Peugeot's free cash flow generation in the next 24 months will not be as strong as in 2014 and 2015 reflecting mostly a moderation in working capital inflow which lifted free cash flow during the last two years. Moreover, Peugeot will start paying dividends to its shareholders starting in 2017, with respect to the 2016 financial year, which, albeit at a moderate level (25% payout ratio) will constrain free cash flow to some extent.

Moody's assessment of Peugeot's rating factors in the rating agency's expectations that the Push to Pass plan for the 2016-21 period largely builds on the previous strategy Back in the Race announced in 2014. Having said that, the new plan raises the company's self-imposed recurring operating margin targets to 4% on average for the period 2016-18 then to 6% by 2021. It also introduces a new 10% group revenue growth by 2018 (compared to 2015; at constant exchange rates) with an additional 15% by 2021. Peugeot said it will achieve these targets through a combination of measures aiming at diversifying and expanding its offerings in the areas of after-sales, leasing, used cars and fleet management which Moody's believes carry a moderate execution risk and associated costs.

However, Peugeot's Ba2 CFR is constrained by (1) the highly competitive nature of the automotive industry; (2) volatility in operating conditions in certain of Peugeot's markets and in foreign currency (both in emerging markets and in respect of the British Pound); (3) the company's high reliance on the European market, which is generally greater than its rated competitors; and (4) subdued commercial performance posted by the company outside of Europe. In the regard to the last point, the company has been held back by its lack of new model launches and lower growth in China year-on-year, the company's second-largest market, in which Moody's forecasts demand growth for passenger cars of 6.5% in 2016, decelerating to 2.5% in 2017. This is likely to constrain the share of income from Peugeot's Chinese joint ventures (which totalled EUR300 million in 2015).

WHAT COULD CHANGE THE RATINGS UP/DOWN

Peugeot's ratings are unlikely to be upgraded in the near-term in light of today's upgrade. Over time, upward pressure could materialise on the ratings and/or the outlook if Peugeot (1) improves its market share on the back of a positive and consistent sales performance and (2) delivers a longer track record of operational improvement with stronger and sustained profitability in its automotive operations. Quantitatively, (1) a structurally positive free cash flow from its industrial operations excluding working capital fluctuations (as defined by Moody's), (2) a Moody's-adjusted EBITA margin for its industrial business around the mid-single-digits (in percentage terms),(3) a Moody's-adjusted EBITA/Interest Expense at or above 3.5x, and (4) a Moody's-adjusted (gross) debt/EBITDA ratio below 2.5x could support a rating upgrade. This assessment is premised on the maintenance of a cash balance of approximately EUR10 billion.

Conversely, the ratings could be downgraded if Peugeot's operational performance were to weaken on the back of continued erosion of its market share, its EBITA margin were to fall to the low single-digit range (in percentage terms, including Moody's adjustments), its free cash flow were to turn negative and its Moody's-adjusted debt/EBITDA were to rise above 3.5x, on a sustained basis.

PRINCIPAL METHODOLOGIES

The principal methodology used in these ratings was Global Automobile Manufacturer Industry published in June 2011. Please see the Ratings Methodologies page on www.moodys.com for a copy of this methodology.

Peugeot S.A. is Europe's second-largest maker of light vehicles with its two main brands Peugeot and Citroën. In addition, Peugeot holds a 51.7% interest in Faurecia SA (Ba2 stable), one of Europe's leading automotive suppliers and remains a 25% shareholder in Gefco, France's second-largest transportation and logistics service provider. In 2015, Peugeot generated revenues of EUR54.7 billion and reported a recurring operating income of EUR2.7 billion.

List of affected ratings:

Upgrades:

..Issuer: Peugeot S.A.

.... Probability of Default Rating, Upgraded to Ba2-PD from Ba3-PD

.... Corporate Family Rating, Upgraded to Ba2 from Ba3

....BACKED Senior Unsecured Medium-Term Note Program, Upgraded to (P)Ba2 from (P)Ba3

....Senior Unsecured Regular Bond/Debenture, Upgraded to Ba2 from Ba3

....BACKED Senior Unsecured Regular Bond/Debenture, Upgraded to Ba2 from Ba3

..Issuer: GIE PSA Tresorerie

....BACKED Senior Unsecured Regular Bond/Debenture, Upgraded to Ba2 from Ba3

Affirmations:

..Issuer: Peugeot S.A.

....BACKED Senior Unsecured Medium-Term Note Program, Affirmed (P)NP

..Issuer: GIE PSA Tresorerie

....Senior Unsecured Commercial Paper, Affirmed NP

Outlook Actions:

..Issuer: Peugeot S.A.

....Outlook, Changed To Stable From Positive

..Issuer: GIE PSA Tresorerie

....Outlook, Changed To Stable From Positive

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.

Yasmina Serghini
VP - Senior Credit Officer
Corporate Finance Group
Moody's France SAS
96 Boulevard Haussmann
Paris 75008
France
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454

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

Releasing Office:
Moody's Investors Service Ltd.
One Canada Square
Canary Wharf
London E14 5FA
United Kingdom
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454

Moody's upgrades Peugeot's ratings to Ba2; stable outlook
No Related Data.
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