Banque PSA Finance Cut to Junk, Peugeot Downgraded One Level image

Standard & Poor’s Ratings Services cut the Banque PSA Finance to junk, a blow to PSA’s efforts to avoid the effects of falling sales on its bank division.

Standard & Poor’s Ratings Services announced that PSA Peugeot Citroen’s bank division was cut one step to BB+, which is one step under the investment grade, and Peugeot’s debt was also cut one level to BB-, which is three steps below investment grade. As the two companies show no sign of improving there is always the danger of seeing their debt downgraded again.

Peugeot was “prepared” for a downgrade, and “this doesn’t impact the financing conditions of the bank, because its financing is secured over the next three years,” said Peugeot spokesman Pierre-Olivier Salmon.

In 2012 the French government offered guarantees for 7 billion euro ($9.3 billion) in Banque PSA Finance’s new bond sales, an effort of Peugeot to keep the unit’s investment grade at Moody’s Investors Service. On February 13th, Peugeot announced its first operating loss over the past three years, when the company also said that it expects auto sales in Europe to fall 3% to 5% this year.

“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,” a goal the carmaker outlined when reporting earnings, S&P said.