France May Bail Out PSA Finance Unit

PSA Peugeot Citroen is in talks with the French government about financing for its Banque PSA Finance unit, whose credit rating is threatened by the carmaker's junk-bond rating.

Finance Minister Pierre Moscovici tells Bloomberg News that France is trying to find domestic banks to fund the finance arm with "undetermined" support from the government. Moscovici predicts a deal will be reached soon.

PSA wants to reschedule about €4 billion of the bank's debt and obtain €1.5 billion in fresh capital, according to Le Figaro. Anonymous sources tell the Paris-based daily that France is in discussions with such lenders about providing a government loan guarantee of as much as €4 billion. Figaro says those lenders include BNP Paribas, Credit Agricole, Natixis and Societe Generale.

The carmaker says it is seeking funding to enable its finance arm to continue making loans to dealers and car buyers that support sales of Peugeot and Citroen vehicles.

Moody's Investors Service warned last week it is considering dropping Banque PSA's rating into junk-bond territory. A downgrade would boost the finance arm's borrowing costs, thus putting the automaker at a greater disadvantage to better-funded rivals.

Government officials, who oppose PSA's plan to close a French assembly plant and eliminate 8,000 domestic jobs, have said any assistance would come with "substantial conditions."