EU approved EUR7-billion state guarantee for PSA unit

Article by Anita Panait, on August 1, 2013

The European Union has approved financial guarantees from the French government for the banking unit of PSA/Peugeot-Citroen. The European Commission has cleared the way for France to guarantee up to EUR7 billion ($9.28 billion) of refinancing through 2016 by the carmaker’s Banque PSA Finance division. The guarantee will help PSA remain afloat as it struggles to restrain its losses in Europe.

In exchange for the approval, PSA will have to curtail its debt levels and accept restrictions on acquisitions. EU Competition Commissioner Joaquin Almunia, said in a statement that they have arrived at a formula that allows PSA to restructure in “accordance with clear limits,” which reduces to minimum the damaging effects for rival carmakers who have not received government financial support.  He said that the formula offers PSA the chance to “make a new start on a sound basis."

PSA was forced to negotiate the French state guarantee for its Banque PSA after a series of credit downgrades hit its borrowing costs. France offered to guarantee the bonds for Banque PSA to help the carmaker keep down borrowing costs.

In a statement, PSA welcomed the European Commission's approval of the state guarantee to secure debt issued by Banque PSA in the period from January 1, 2013 to 31 December 31, 2016. The carmaker said the agreement strengthened Banque PSA's financing and offers “visibility and financing confirmed” for over three years. [source: PSA]

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