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Casino Royale

17 January 2020 by jbchevrel

Casino (COFP) was back under the limelights, it was the notable underperformer today in eur hy cds space. The 5y contract is wider by +40bp on the day, closing at about 700bp. As we can see above, it remains quite low in the range. As it came from 1,100bp last summer and it failed to break below 600bp in the downward trend since then. Today’s move was largely due to a profit warning from COFP which cast doubt on whether its parent company Rallye SA (RALFP) can bring itself back to financial health. COFP said late yesterday that FY19 earnings from its core French retail business missed its forecasts after they took a hit from a wave of strikes and protests across France. As a result, COFP expects operating profit for its French retail business to have grown 5% last year, down from company’s previous 10% target, CFO said. Fnac Darty also had a profit warning attributed to disruption caused by social protests. Casino was especially hit in Paris, through their Monoprix and Franprix chains. These strikes are about the pension reform and those have been prolonging the climate of violence and disorder experienced since the Yellow Vests movement started, in autumn 2018, helping crime statistics sky rocket throughout France, but especially in Paris. French retailers are probably one of the best segments of the market to express that, as the sovereign isn’t bothered (10y OAT just 25bp over Bund) because the ECB is here and there is no election that really matters before the spring of 2022.


16 January 2020 by jbchevrel

Bombardier Inc (BOMB) CDS widened from 415bp to 530bp today. BOMB warned on their Q4 results. Management this morning pre-released Q4 results that were lower than previous guidance. The key drivers were 1) actions taken to resolve challenging rail projects 2) the timing of milestone payments and new orders at Transportation 3) the delivery of four Global 7500 aircraft slipping into q120. FCF was guided lower -- estimated $1.0B vs $1.7B expected. This is as a result of timing of cash inflows from milestone payments on large Transportation projects and later-than-anticipated closing of certain orders. Should be recovered for Q120. The good news in aviation arm was that the ramp-up in Global 7500 production is encouraging. The company had been targeting delivery of 10 Global 7500’s in Q4 and 6 were delivered, with the remaining aircraft (which were set for delivery in the final days of Q4) slipping into Q1. BOMB also achieved its margin target of 7% in Q4. Issues remain in transportation arm. BOMB continues to deal with its challenging legacy projects, as discussed previously in this blog. BOMB announced a charge of approximately $350M related to certain projects in the UK (the Aventra platform), commercial negotiations with Swiss Federal Railways (SBB), and increased production and manufacturing costs for projects in Germany. The company did not achieve these milestones in Q4 and are now in negotiations with customers to reset schedules, to resolve late-delivery penalties, and to address related provisions and costs. Importantly, BOMB has also been reassessing their ongoing participation in A220 (JV with Airbus among others). BOMB announced that the financial plan from ACLP has been revised and calls for additional cash investments to support production ramp-up, pushes out the break-even timeline, and generates a lower return over the life of the program – negatively impacting the JV value. BOMB therefore pointed to a potential write-down, with the amount to be disclosed in Q4 release. The question is what the impact to BOMB will be from the additional capital required.

No Exit

15 January 2020 by jbchevrel

Lebanon (LEBAN) CDS mid inched closer to 59% this AM before reverting to 58.5% mid on the 5y. Things there aren’t going any better. Lebanese protesters spilled back into the streets yesterday after a brief letup, blocking major highways as they denounced the lack of a functioning government at a time of deepening financial and economic crisis. Demonstrators used burning tires and trash to build barriers in Beirut, and across the country, blaming politicians for deteriorating living conditions. They also rallied outside the central bank (BDL) headquarters. Lebanon’s plan to get local banks to swap into longer-maturity Eurobonds may be meeting resistance and signals growing financial stresses in the country, according to JPM. Local lenders started selling a $1.2b bond after the BDL proposed an exchange into other instruments when it matures on March 9. BDL head Salameh said last week the plan was “preemptive” and dependent on the banks’ consent. While he didn’t say what the terms of the new bonds would be, JPM analysts said locals may be asked to swap into existing sovereign $ bonds (11.5 Nov29 and 12.0 Jul35). Locals have started selling the Mar20 Eurobonds, which could suggest that the banks have a limited appetite for the BDL proposed swap. The move from the BDL confirms the high near-term liquidity stress. the 6.375 Mar20 dollar notes are in the area of 88, the 5.8 Apr20 dollar notes are ~82, Jun20 dollar notes are ~78. In CDS space, Mar20 is ~15, Jun20 is ~30 and 1y is ~40

Sub 200 Close

14 January 2020 by jbchevrel

Tesla, Inc. (TSLA) CDS has notably outperformed, with the 5y contract coming from 700bp in Q219 to now less than 200bp. We close the mid (European close) at 192bp today on the 5y, making the name just ~30bp above Ford Co. Post Q419 deliveries, analysts raised their stock price targets along with their future delivery forecasts. Indeed, deliveries finished the year strong: Q419 deliveries of 112.0k (+15.2% q/ q, +23.1% y/y) were above the consensus of 106k and brought full-year deliveries to 368k units. In parallel, the shares have more than doubled since mid-October, helped by a surprise Q319 profit, strong deliveries for Q419, the quick construction of the China plant and a general improvement in sentiment (shorts being burnt). On the negative side of things, some analysts still think that the larger part of potential demand for TSLA products is at a price point where TSLA is not profitable. TSLA has begun to offer some of these price points, but it has the potential to be dilutive to margins, so the medium term impact on profit is mitigated. With the fleet of Tesla cars in operation much larger than prior, the number of issues in the fleet is rising, so if the investment in service does not keep pace with the fleet size, TSLA brand image, a big asset, could be damaged. Potential execution risk sources are still multiple (Chinese/European plants, Model Y). The focus will now shift to Tesla’s Q419 earnings report. The release will come on January 29. At that point, market players will be looking at auto gross margins (consensus 20%), FCF (consensus $300m) and 2020 delivery guidance (consensus 450k).