Banque PSA poised to price first state-guaranteed bond

Mon Mar 25, 2013 7:14am EDT

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LONDON, March 25 (IFR) - Banque PSA, the financial arm of loss-making French car maker PSA Peugeot Citroen, began marketing its first bond guaranteed by the Republic of France on Monday and has already attracted over EUR2bn of orders.

The transaction, which will be no greater than EUR1.2bn, marks the company's first foray into the bond market since receiving a EUR7bn state loan guarantee late last year, generating EUR1bn in a share issue and raising a further EUR2bn by selling assets.

Despite Peugeot posting its biggest-ever full-year loss in mid-February, and weakening prospects for a European market recovery, observers said that the sovereign guarantee signifies a new chapter for the company as a debt issuer.

"The guarantee will open the credit up to a more diversified investor base and I expect that especially investors looking for low-risk paper will be happy to put their money in the name," one syndicate banker away from the deal said.

Banque PSA started marketing the three-year bonds, which will be rated Aa1 by Moody's and AA+ by Standard & Poor's, in the OAT 3.25% April 2016 +30bp area, and has since set official guidance at +25/28bp.

The notes will price later in the day via BNP Paribas, Credit Agricole, Citi, HSBC, Natixis, RBS, Societe Generale and UniCredit as active leads, and Bank of America Merrill Lynch, Santander and Credit Mutuel as passive leads.

AN UPHILL BATTLE

Banque PSA was last in the public unsecured bond market in June last year when it printed a EUR600m 4.875% September 2015 bond at mid-swaps +385bp. Those bonds were rated Baa2/BBB and have tightened significantly since then, bid at swaps +326bp on Monday, pre-announcement of the new deal.

The issuer is also likely to have been encouraged to come to the market by strong demand for a EUR1bn five-year bond issued by parent company Peugeot in late February.

The deal attracted a EUR4.5bn order book, and priced at a yield of 7.50%, equivalent to 657.4bp over mid swaps. It has since tightened to around 620bp over.

The success of that deal shows that investors have largely shrugged off a downgrade by S&P to both PSA Peugeot Citroen and its financial arm last month. The rating agency pushed Peugeot further into junk territory at BB-, and Banque PSA to BB+. Moody's rates Banque PSA at the Baa3, the lowest investment-grade rating.

The downgrade, the agency said, was prompted by the record-loss reported for the year.

The ratings agency, which previously downgraded Peugeot in July, also said it was keeping a negative outlook on the automaker's debt, which it said reflected a view that Peugeot's weak performance in a continuously stressed market environment and ongoing challenges could hamper its plans to restore breakeven, in free operating cash flow terms, by the end of 2014.

Peugeot's five-year CDS currently trades at around 691bp. Renault has had to face similar domestic macroeconomic headwinds but its five-year CDS trades at around 255bp. (Reporting By Josie Cox, IFR Markets; editing by Alex Chambers and Natalie Harrison)

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