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‘Renault could disappear’ But it won’t

22 May 2020 by jbchevrel

Renault CDS faced COVID crisis starting at 140bp. It reached 400bp in a bit more than a month, peaking in early April. Since then the spread has retraced 38% of the widening. Now around 300bp. That is to be compared with a 63% retracement in the case of Main Index and a 51% retracement in the case of XOver Index. Roll effect neglected. Renault 5y CDS spread of around 300bp is around flat to Peugeot, around double of Daimer and VW and around triple of BMW. French MOF Le Maire said that Renault could go out of business if it does not get help very soon to cope with the fallout from the coronavirus crisis, while adding that the automaker also needed to adapt to the situation. Le Maire also said that Renault's plant in Flins outside of Paris must not close and that automaker should try to keep as many jobs as possible in France, but should also remain competitive. "Yes, Renault could disappear," Le Maire. Le Maire said that he had not yet signed off on a €5B loan for Renault, and that discussions were continuing. The thing is that the EU has granted approval for the loan already and as reported by Reuters earlier this week, sources said Renault had reached an agreement with banks, on the loan, and it should be submitted to the BoD soon. After that, it will just have to be formally approved by the MOF, which in fact, will happen almost surely. So yes, Renault could disappear, but it won’t. It will be painful, though: Renault is due to present details of a cost-cutting plan to save €2B costs in next 2y. Q1 rev -19% €10.1B € sales -36%. Options on the table: a. closing several small component plants in France b. closing the Alpine assembly site in Dieppe c. ending assembly at the historic Flins plant d. discontinue slow-selling models (Espace, Talisman). Le Maire said the government is seeking commitments from automakers on a. EVs b. fair treatment of sub-contractors c. base advanced technology activities in France d. relocate some vehicle production in France. France's response to COVID crisis totals €450B (~20% GDP - aids and state guarantees). France sees itself -8% this year at least, with a budget deficit @ postwar record 9% GDP in 2020.