PSA finance arm may need state help in days -paper

PARIS Mon Oct 22, 2012 3:22pm EDT

PARIS Oct 22 (Reuters) - Troubled French automaker PSA Peugeot Citroen may need state backing for its car loans arm as soon as this week because publication of the group's quarterly sales on Wednesday may trigger debt rating downgrades, Les Echos newspaper reported.

Peugeot said last week that it was weighing a state-backed rescue for Banque PSA Finance (BPF), as recent ratings downgrades at the group threatened to relegate the financing arm to junk status. Such a move would further widen the automaker' s competitiveness gap by making its loans more expensive.

Les Echos said the issue of state support for BPF was due to be discussed in a crisis meeting at the offices of French Prime Minister Jean-Marc Ayrault on Monday.

Peugeot and the prime minister's office declined to comment.

Peugeot's quarterly sales figures on Wednesday will probably force ratings agencies to cut their ratings on the carmaker, and thus on BPF, Les Echos said.

"The state could have to provide its support from this week," the report cited an unidentified government source as saying.

Punished by its costly domestic production and excess capacity, Peugeot is losing a European price war to larger and leaner rivals such as Volkswagen.

Finance Minister Pierre Moscovici said last week that officials were working on measures to help BPF obtain the financing it needs and said that would be finalised very soon.

BPF offers financing for Peugeot and Citroen dealers and customer loans.

Moody's cut the automaker' s debt rating earlier this month to Ba3, three notches below investment grade, raising the likelihood that the financing arm would also be relegated.

In July, Standard & Poor's also cut Peugeot to BB, two rungs below investment grade, with a "negative" outlook signalling a further reduction was likely.

While loans divisions are evaluated separately by the major agencies, their ratings are not allowed to stay more than two notches above the parent carmaker's. (Reporting by James Regan, Gilles Guillaume and Elizabeth Pineau; Editing by Dan Grebler)