(Adds details of structure and background)
By Alasdair Reilly and Tessa Walsh
LONDON Jan 9 Banque PSA, the financial arm of PSA Peugeot Citroen, is set to sign around 5 billion euros ($6.5 billion) of loans as part of an 18.5 billion euro debt rescue plan, bankers said on Wednesday.
The debt rescue package consists of an 11.5 billion euro loan refinancing, which includes the 5 billion euro loan and bilateral loans, and around 7 billion euros of state loan guarantees, bankers said.
Slumping sales at Peugeot, Europe's second-biggest auto maker, have put the group's finances under strain, forcing it to shed assets, cut 10,000 jobs and close production capacity.
Banque PSA is putting the 11.5 billion euro refinancing package in place to secure funding before a possible downgrade of its credit rating to non-investment grade or "junk". A downgrade would increase the bank's funding cost.
The 5 billion euro loan refinancing is being arranged by French banks including BNP Paribas, Credit Agricole, Natixis and Societe Generale. French banks are also providing the bilateral loans.
The French government's 7 billion euros of state loan guarantees were submitted to the European Union for approval on Wednesday after they were deemed restructuring aid.
Banque PSA's 5 billion euro loan financing closed successfully after raising a healthy oversubscription, a banker close to the deal said, and is expected to sign at the end of this week or the beginning of next.
"This is a positive result in the circumstances, the EU challenge to state aid is outstanding, but banks still came in and supported the client," one of the bankers said. "There is a lot of press coverage of Peugeot, the deal was a lot of money in a challenging sector, but it got done well."
The financing includes a 3.6 billion euro new money term loan, which raised 4.1 billion euros in syndication, and a "forward start" of around 1.1 billion euros that will extend the maturity on existing loans when they expire.
Some existing lenders declined to join various parts of the 5 billion euro refinancing due to over-exposure to the auto sector and banks' withdrawal from non-core relationship lending.
To counter the dominance of French banks in the loan, a "super majority" concept was introduced for any decisions that need to be made on the loan which makes it difficult for one group of banks to control the financing.
The interest margin on the financing is based on ratings and pays a margin of around 370 basis points (bps) over EURIBOR for a rating of Ba1/BB+ if Banque PSA is downgraded from its current BBB-/Baa3 level, one banker said previously.
Peugeot said in October 2012 Banque PSA had obtained banking support for new terms and conditions on the 11.5 billion euro loan facilities, which included 1 billion of new liquidity.
The credit facilities will be available for drawing between 2013 and 2015. ($1 = 0.7667 euros) (Editing by Keiron Henderson and David Holmes)