PARIS (Reuters) - PSA Peugeot Citroen's (PEUP.PA) debt was cut to junk status by credit ratings agency Moody's on Thursday, after the French automaker announced a 1 billion euro ($1.34 billion) share issue and an alliance with U.S. peer General Motors (GM.N).
Moody's Investors Service lowered Peugeot's rating by one notch to Ba1, the highest so-called "speculative" grade with a negative outlook.
The cost of implementing the alliance will hurt Peugeot's earnings in the short term, the agency warned, and cooperation may not produce the savings expected later.
"Moody's notes that past mergers and alliances in the automotive industry have often not resulted in the anticipated competitive advantage and improved performance," it said.
Peugeot shares, which had opened lower on Thursday following the alliance and rights issue announcement, plunged as much as 7.7 percent after the Moody's statement and were 6.4 percent lower at 1203 GMT. ($1 = 0.7476 euros)
Reporting by Laurence Frost; Editing by Christian Plumb