PSA Peugeot Citroen (UG), Europe’s second-biggest carmaker, said it is close to finalizing a deal with a pool of banks to refinance debt at its banking unit, providing a financial cushion as the debt crisis saps demand.
Talks with lenders are “on track” and should lead to an agreement by Christmas, Carole Dupont-Pietri, head of investor relations at Peugeot, said in a telephone interview. She declined to provide details.
Peugeot’s banking unit Banque PSA Finance, or BPF, is seeking a 4 billion-euro ($5.3 billion) syndicated loan to refinance debt, according to two people with direct knowledge of the proposal.
The self-arranged deal is being marketed to lenders and may include a five-year term loan and a three-year forward-start revolving credit, said the people, who asked not to be identified as the terms are private. Banks are being asked to indicate their interest in the deal, which is expected to be completed early next year, the people said.
The loan package is part of an 11.5 billion-euro funding target that BPF started raising from its banking pool in October. These cash facilities are themselves part of a broader plan announced by Peugeot on Oct. 24 to safeguard the finances at the bank, which provides loans for consumers and car dealers and has come under pressure as Peugeot’s sales tumble.
“This may support the bank’s investment grade,” said Pierre Bergeron, a credit analyst at Societe Generale in Paris. “But Peugeot’s sales were very bad again in October and November and this will weigh on the parent company’s rating, which itself weighs on Banque PSA’s rating.”
Auto sales in the European Union fell 7.6 percent through November to the lowest level since 1993. Deliveries for Peugeot, which has struggled to match car-loan rates offered by Volkswagen AG (VOW), slumped 13 percent.
Peugeot advanced as much as 28 cents, or 5.3 percent, to 5.54 euros and was up 5.2 percent as of 3:47 p.m. in Paris trading. The shares have fallen 48 percent this year, valuing the company at 1.96 billion euros.
As part of the plan to shore up BPF, Peugeot received 7 billion euros in guarantees from the French government to issue new bonds, allowing BPF to raise money at lower interest rates.
The lender was put on review for a credit-rating downgrade by Moody’s Investors Service on Nov. 14 after Peugeot was cut to three levels below investment grade. Moody’s rates the financing unit at Baa3, just above non-investment status.
“What Peugeot needs now it the European Commission to approve of this state financial help,” said Philippe Houchois, an analyst at UBS in London.
Final agreement on the French government’s financial guarantees is scheduled for Dec. 19, according to the French National Assembly’s website. The aid may be reviewed by the EU. David McAllister, the prime minister of VW’s home state of Lower Saxony, said in an October interview that he may seek to challenge France’s support of Peugeot.