Renault Cut to Junk, Capping Disastrous Year Without Ghosn

(Bloomberg) -- Renault SA had its credit rating cut to junk by Moody’s Investors Service after the French carmaker posted its first annual loss in a decade and indicated operating margins are set to shrink.

Moody’s lowered Renault’s long-term debt rating one step to Ba1, a level below investment grade. The automaker is still rated above junk by Standard & Poor’s.

“Based on the company’s 2020 guidance anticipating a further decline in the group’s operating margin and the continuing weakness of the market environment, we do not expect that Renault will be able to restore healthy operating margin levels in the medium term,” Moody’s said in a statement Tuesday.

The carmaker, suffering from slumping sales in key markets and a dismal performance at partner Nissan Motor Co., will conduct a review of its Chinese assets and explore plant closures to rein in costs, acting Chief Executive Officer Clotilde Delbos told reporters at a press conference Friday.

Renault and Nissan saw their operations deteriorate last year as they bickered over terms of their alliance. The partnership became frayed after the arrest of Carlos Ghosn, who led both companies through force of personality, over allegations of financial wrongdoing in Japan. The case took another twist at the end of last year, when Ghosn, who denies the charges, escaped to Lebanon.

Ample Cash

At the Friday press conference, Delbos also said the company had some 16 billion euros ($17.3 billion) of available cash.

“We’re very confident that there is no topic on cash availability within the group,” she said. “It’s amply sufficient to face movement in working capital, restriction needs, et cetera.”

Spokeswoman Astrid de Latude declined to comment when reached by Bloomberg News.

The decision by Nissan to scrap its year-end dividend represented a big financial hit for Renault, which owns 43% of the Japanese carmaker. The French company will cut its own payout by more than two-thirds to 1.10 euros a share, it said on Friday.

Nissan is rated A3 by Moody’s, four steps above junk.

Credit Default Swaps

Renault has 6.4 billion euros of bonds outstanding, with 531 million euros coming due in July. Its notes maturing in June 2025 are indicated at 99.9 cents on the euro, down from a record high of 103 cents in August, data compiled by Bloomberg show.

Credit default swaps, which protect against the borrower failing to repay its debts, are indicated at 129 basis points, up from a low of 48 basis points in April 2018, Bloomberg data show.

For 2020, Renault sees annual revenue in line with 2019, leaving aside currency swings, and a group operating margin of between 3% and 4%. That compares with 4.8% last year and 6.3% in 2018.

--With assistance from Rudy Ruitenberg and Irene García Pérez.

To contact the reporter on this story: Frank Connelly in Paris at fconnelly@bloomberg.net

To contact the editors responsible for this story: Anthony Palazzo at apalazzo@bloomberg.net, Alan Katz

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