PSA Peugeot Citroen, Europe’s second-largest carmaker, had its credit rating cut to junk by Moody’s Investor Services, which cited concern about the French company’s deteriorating finances and a jump in net debt.

Peugeot’s long-term debt rating was lowered one grade to “Ba1” from “Baa3,” Moody’s said in a statement Thursday. Shares of the automaker, which announced a strategic alliance with General Motors Co., plunged as much as 7.7 percent.

Peugeot’s fiscal year 2011 results were “well below Moody’s expectations,” analyst Falk Frey said in the statement, adding that the downgrade also “incorporates PSA’s challenges to improve its financial metrics over the short-to-medium term following a severe deterioration in 2011, and more important turn around its loss-making core automotive business.” 

(Bloomberg)