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TEXT-S&P cuts Banque PSA ratings
July 25, 2012 / 4:42 PM / 5 years ago

TEXT-S&P cuts Banque PSA ratings

 (The following statement was released by the rating agency)

Overview
  -- On July 25, 2012, Standard & Poor's lowered by one notch its long-term 
rating on European auto manufacturer Peugeot S.A. (PSA, BB/Negative/B).
  -- We are lowering the long- and short-term ratings on PSA's captive 
finance arm, Banque PSA Finance (BPF) to 'BBB-/A-3' from 'BBB/A-2', as we cap 
the rating on BPF two notches above that on its parent. 
  -- The negative outlook reflects that on PSA.

Rating Action
On July 25, 2012, Standard & Poor's Ratings Services lowered to 'BBB-/A-3' 
from 'BBB/A-2' its long- and short-term counterparty credit ratings on 
Peugeot's captive finance arm, Banque PSA Finance (BPF) and its subsidiary 
Credipar. The outlook is negative. 

At the same time we lowered to 'A-3' from 'A-2' the short-term counterparty 
credit rating on Sofira, also a subsidiary of BPF.

Rationale
The downgrade follows a similar action on BPF's parent, French carmaker 
Peugeot S.A. (PSA, BB/Negative/B) (see "French Carmaker Peugeot Downgraded To 
'BB' On Rapid Cash Burn And Mounting Operational Challenges; Outlook 
Negative," published July 25, 2012, on RatingsDirect on the Global Credit 
Portal). Our rating on BPF is constrained by the rating on PSA, reflecting the 
position of the bank as a captive finance subsidiary of the group. BPF's 
long-term rating stands two notches above that on PSA, taking into account 
BPF's stand-alone credit profile (SACP) of 'bbb', its regulated status as a 
bank, and our view of its "moderate" systemic importance in France.

BPF is wholesale funded, which we view as a weakness, but this is mitigated by 
its conservative liquidity management. The bank's funding mainly depends on 
capital market instruments and to some extent on bank facilities and 
securitization. In terms of financial autonomy, the bank's policy is to cover 
all refinancing needs for at least six months, assuming no rollover of 
outstanding debt, while continuing to provide loans. BPF has consistently been 
above this limit, in our estimates. As of end-June 2012, the bank had 
financial autonomy of six months; a securitization of French commercial debt 
should bring this to seven months by end-July. The bulk of its refinancing 
resources have original maturities greater than one year, and its short-term 
outstanding debt is covered nearly two times by a liquidity buffer composed 
almost entirely of undrawn committed bank credit lines. We believe BPF 
continues to have good market access, as its diversified set of investors 
illustrates, and based on its successful issuance of three senior unsecured 
bonds in the first semester of 2012 that allowed the bank to nearly complete 
its 2012 bond financing program. As a regulated bank, BPF retains access to 
European Central Bank funding.

We consider BPF to be a core subsidiary of its lower-rated parent PSA. 
Although we generally don't rate core subsidiaries higher than their parents, 
we believe BPF is to some extent insulated from PSA because of its regulatory 
and legal status as a bank, higher SACP, and fully independent refinancing 
strategy. For regulated subsidiaries, and under our captive finance operations 
criteria, we generally cap the long-term rating on captive finance 
subsidiaries one notch above the long-term rating on the parent. However, we 
cap the rating on BPF two notches above that on its parent given our view of 
BPF being also of "moderate" systemic importance in France and our assessment 
of the French government (Republic of France; unsolicited AA+/Negative/A-1+) 
as "supportive" to its banking system. We believe that possible extraordinary 
government support to BPF in the case of stress further insulates it from 
potential distress at its parent company.

Outlook
The outlook is negative and mirrors that on PSA.

We anticipate that we would likely downgrade BPF if we downgraded PSA. 

We expect BPF to remain of "moderate" systemic importance in France. Given 
past experience, notably at the height of the financial crisis, we believe 
additional financial or funding support would be forthcoming in case of need 
and we would assess its rating implications in due course. We also expect BPF 
to maintain its intrinsic characteristics of a captive finance company with 
resilient revenues and earnings, strong capitalization, an adequate risk 
profile, and conservative liquidity management.

We would most likely consider revising the outlook on BPF to stable if we 
revised the outlook on PSA to stable.

Ratings Score Snapshot
Issuer Credit Rating      BBB-/Negative/A-3

SACP                      bbb
 Anchor                   a-
 Business Position        Weak (-2)
 Capital and Earnings     Strong (+1)
 Risk Position            Adequate (0)
 Funding and Liquidity    Below Average and Adequate (-1)

Support                   0
 GRE Support              0
 Group Support            0
 Sovereign Support        +1
Additional Factors        -2 *

*Issuer credit rating capped two notches above the parent's long-term rating.

Related Criteria And Research
  -- Banks: Rating Methodology And Assumptions, Nov. 9, 2011
  -- Banking Industry Country Risk Assessment Methodology And Assumptions, 
Nov. 9, 2011
  -- Group Rating Methodology And Assumptions, Nov. 9, 2011
  -- Bank Hybrid Capital Methodology And Assumptions, Nov. 1, 2011
  -- Captive Finance Operations, April 17, 2007
  -- Bank Capital Methodology And Assumptions, Dec. 6, 2010
  -- Use Of CreditWatch And Outlooks, Sept. 14, 2009
  -- Regulation Benefits Ratings On European Automakers' Captive Finance 
Subsidiaries, May 18, 2006

Ratings List
Downgraded
                                     To                 From
Banque PSA Finance
Credipar
 Counterparty Credit Rating             BBB-/Negative/A-3  BBB/Negative/A-2

SOFIRA
 Counterparty Credit Rating             --/--/A-3          --/--/A-2
 Commercial Paper                       A-3                A-2

Banque PSA Finance
Senior Unsecured                        BBB-               BBB
 Certificate Of Deposit
  Foreign Currency                      BBB-/A-3           BBB/A-2
  Local Currency                        BBB-/A-3           BBB/A-2
 Certificate Of Deposit                 A-3                A-2

Credipar
 Certificate Of Deposit
  Foreign Currency                      BBB-/A-3           BBB/A-2
  Local Currency                        BBB-/A-3           BBB/A-2

Peugeot Finance International N.V.
 Senior Unsecured*                      BBB-               BBB
 Commercial Paper*                      A-3                A-2

*Guaranteed by Banque PSA Finance.

 (Caryn Trokie, New York Ratings Unit)
 

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