PSA Peugeot Citroen debt risk soars to a record level image

PSA Peugeot-Citroen is seeing difficult times ahead, as the cost of insuring the company soared more than any company in Europe.

The reason for this is that insurers are worried that PSA’s asset sales won’t be enough to revive the carmaker’s finances. Credit-default swaps on PSA rose to a more than two-week high of 758 basis points at 12:50 p.m. in London on Friday, from 647 on Sept. 14, which is the biggest weekly increase since May 2010. The contracts now imply a 48 percent chance of default within five years.

PSA Peugeot Citroen wasn’t helped by French President Francois Hollande’s remarks either. On Thursday, Hollande said Europe’s second-largest carmaker is in “severe” difficulties after its rating was cut to three levels below investment grade by Fitch Ratings on September 19.

Peugeot agreed this week to sell 75 percent of its Gefco logistics unit to Russian Railways for 900 million euros ($1.2 billion) in order to boost its balance sheet. However, the Gefco sale is seen by analysts as a medium-term failure, as PSA loses a profitable business, even though on short-term it brings the company much needed cash.

For the last year, PSA’s automotive division has been losing 200 million euros in cash every month, with the company reporting an 819 million euro first half net loss.