Peugeot Sells Asset-Backed Bonds to Boost Auto-Loan Financing

PSA Peugeot Citroen’s banking unit sold about 470 million euros ($621 million) of securities backed by French auto loans to shore up finances as it awaits a decision by the European Union on government bond guarantees.

The sale of asset-backed securities is “part of Banque PSA Finance’s strategy to diversify its funding sources and to increase the share of funding from its securitization program in order to support” Peugeot’s sales, the Paris-based company said in a statement today.

Peugeot, Europe’s second-largest carmaker, secured financial backing from the French government for Banque PSA Finance to sell as much as 7 billion euros in bonds to help it provide competitive auto loans to support sales. The financing unit sold an initial tranche of 1.2 billion euros in bonds in March under a temporary approval from the EU.

The French carmaker faces an in-depth examination by the EU’s antitrust watchdog to check whether its restructuring plans are in line with state-aid rules.

The European Commission said on May 2 it needed to verify whether the plan will restore the company’s long-term financial viability without continued state support and whether the aid will hurt competition.

Banque PSA Finance, or BPF, was cut one level below investment grade by Moody’s Investors Service on April 16. The credit ratings company said that the auto-financing unit can’t escape the European car-market contraction plaguing its parent.

The securities sold by Banque PSA Finance were carried out in two tranches. Class A notes were priced at 85 basis points above one-month Euribor, while Class B notes were priced at 150 basis points above the interest-rate benchmark.

The bank sold 450 million euros in Class A notes and 19.7 million euros in Class B notes. The Class A notes have an average 2.7-year life, while Class B notes run on average for 4.9 years.

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