DBRS Places PSA Peugeot Citroën Under Review with Negative Implications

DBRS has today placed the Senior Unsecured Debt rating of PSA Peugeot Citroën (PSA or the Company) Under Review with Negative Implications. The rating action follows the Company’s announcement to reorganize its manufacturing operations and redeploy its workforce in response to market challenges. Planned measures include the following:

-- Ceasing production at PSA’s Aulnay plant (which employs 3,000 people).
-- Adjusting production at its Rennes plant (which would involve a reduction of 1,400 employees).
-- Further reductions in staff across corporate and production facilities in France (to total 3,600 employees).

The announcement of the planned staff reductions that total 8,000 employees is in response to ongoing difficult market conditions across the European continent, with Southern Europe (to which PSA is significantly exposed) being the most adversely impacted. Through the first six months of 2012, industry volumes in Europe have contracted by 8% year over year (exceeding the Company’s prior forecasted decline of 5%). Moreover, vis-à-vis 2007, European volumes are down by 23%.

In line with the above, the Company further announced that for the first half of 2012 it expects its automobile segment to incur an operating loss of approximately EUR 700 million (readily exceeding the loss of EUR 497 million incurred during the second half of last year). PSA further revealed that since mid-2011, the Company has been consuming cash at approximately EUR 200 million per month (excluding unusual items and proceeds from property disposals), with the Company not expecting operating cash flow (less capital expenditures and capitalized research and development costs) to revert to break-even levels prior to year-end 2014. Accordingly, the Company is supplementing its previous countermeasures (announced concurrently with PSA’s 2011 financial results) aimed at conserving cash, with the most recent announcement aimed at further addressing PSA’s cost structure and overcapacity issues amid the difficult market conditions.

Notwithstanding the above, DBRS notes that PSA’s liquidity position remains solid. Cash balances of the automobile segment, as of December 31, 2011, totaled EUR 5.2 billion, with the Company’s EUR 2.4 billion revolving credit facility remaining undrawn. Moreover, PSA’s debt repayment schedule is favourable, with minimal repayments due in 2012 and weighted average maturity of 4.9 years.

DBRS had previously (in March of this year) changed the trend on the rating to Negative (from Stable) given weak earnings amid challenging market conditions; (for details, please refer to DBRS's press release dated March 22). However, the deterioration in Europe as well as PSA’s newly planned countermeasures exceed DBRS’s previous expectations. The Company plans to announce further details regarding its financial position and planned additional countermeasures upon the release of its 2012 first half financial results scheduled for July 25. DBRS expects the Under Review with Negative Implications status to be resolved shortly following this forthcoming announcement.

Notes:
All figures are in Euros unless otherwise noted.

The applicable methodology is Rating Companies in the Automotive Industry, which can be found on our website under Methodologies.