PSA's banking unit cut to junk by S&P on sluggish Europe car sales
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PARIS (Bloomberg) -- PSA/Peugeot-Citroen has been downgraded by Standard & Poor's Ratings Services while its banking unit has been cut to junk by the ratings firm on sluggish sales forecasts in Europe.
PSA's long-term debt was cut to BB-, or three levels below investment grade, and Banque PSA Finance was cut to BB+, or one level below investment grade, the ratings firm said in two separate e-mailed statements on Thursday.
S&P said it capped the rating of PSA's banking unit at two notches above that of its parent company. The outlook is negative for both. "In light of continually stiff competition in its core markets, Peugeot is unlikely to generate break-even free operating cash flow before the end of 2014," S&P said.
The French carmaker, which reported its full-year earnings Feb. 13, vowed to reach break-even free operating cash flow at the end of next year.
Its banking unit was rescued by the French government last year, in the form of a 7 billion euro ($9.3 billion) guarantee on future bonds, to avoid a rating cut to junk. That made it more difficult to offer affordable credit conditions to customers.
Industrywide European auto sales fell 7.8 percent to 12.5 million in 2012, with PSA Group's deliveries dropping 13 percent to 1.46 million, according to the Brussels-based ACEA trade group. PSA predicts that the region's market, which accounted for 62 percent of the French company's deliveries last year, will contract by another 3 percent to 5 percent in 2013.
Cash targets
PSA pledged Feb. 13 to cut its cash-consumption rate 50 percent in 2013 and reach the break-even level by 2014 after burning through 3 billion euros last year. The automaker plans to reduce its French automotive workforce by 17 percent in the next two years as the European car market, already at almost a two-decade low, shrinks in 2013 for a sixth consecutive year.
PSA reported its first operating loss in three years as a contraction in the regional vehicle market caused its automotive division's cash consumption to accelerate. The loss before interest, taxes and one-time gains or costs of 576 million euros in 2012 compares with a profit of 1.09 billion euros a year earlier. The carmaker cut spending by 1.18 billion euros, beating a reduction target of 1 billion euros. Asset sales totaled 2 billion euros, one-third more than budgeted, PSA said.
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