S&P cuts Renault bonds to ‘junk,’ downgrades outlook on PSA due to coronavirus slump

PARIS — Credit rating agency Standard & Poor’s (S&P) delivered downgrades on Thursday to France’s top car companies Renault and PSA, cutting Renault’s bonds to ‘junk’ status due to the impact of the new coronavirus.

S&P downgraded Renault to ‘BB+/B’ from ‘BBB-/A-3’, meaning it had ascribed a “junk bond” status to those Renault corporate bonds.

“French automaker Renault has an ample liquidity cushion and can, in our view, count on guarantees from the French state,” S&P wrote in a research note.

“We nevertheless expect Renault’s earnings, free cash flow generation (FOCF), and financial position to weaken materially in 2020, following an already challenging 2019,” added S&P.

S&P kept a BBB- rating on Peugeot-company PSA, but it cut its outlook on PSA to “negative” from “stable.”

Shares in Renault and PSA were both down by around 1% in late session trading.

Data earlier this month showed that French car registrations had dropped by more than 72% in March due to the coronavirus outbreak and lockdown ordered by authorities to fight the epidemic spread.

The FCA-PSA merger

With their sales hammered by the coronavirus outbreak, car makers Fiat Chrysler and Peugeot’s owner PSA have postponed their shareholder meetings and are looking at ways to boost cash reserves ahead of their planned merger.

The two car makers have turned to their banks to secure much needed cash, and Fiat Chrysler (FCA) is looking at debt guarantees that the Italian government approved on Monday to support local companies, a source with knowledge of the matter told Reuters.

FCA, whose legal headquarters is in the Netherlands, runs several plants in Italy and may qualify for the government scheme which offers more than 400 billion euros worth of liquidity and bank loans to companies hit by the pandemic, the source said, cautioning no decision had been made.

A spokesman for FCA declined to comment.

In late March FCA secured a 3.5 billion euro credit line, with an initial 12-month term that can be extended six months. This added to existing credit facilities worth 7.7 billion euros.

The Italo-American firm, chaired by John Elkann, scion of the Italian Agnelli family, would need to cut its ordinary dividend if it decides to pursue state aid from Italy. The emergency decree says companies looking to apply for Italy-backed loans must refrain from approving dividend payments for a year.

FCA’s decision to postpone the shareholders’ meeting to late June has analysts speculating that its ordinary dividend worth 1.1 billion euros could be axed or postponed.