Renault to pay Lotus debt…with PDVSA money?

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While Renault announced their acquisition of Lotus F1 last week, it is an interesting situation from a debt perspective. Perhaps they do things differently in Europe or maybe the reasonable ability to keep the team as a going concern necessitated the acquisition of assets and debt but regardless, it seems Renault just bought themselves a heaping helping of debt that has to be paid off soon. Lotus F1’s CEO Mathew Carter said:

“It’s the 16th for the SPA (share purchase agreement) and they (Renault) are agreeing to pay all the creditors by the 31st,” he said.

“So I guess when we come back on the 21st it will be to ensure that the SPA has been signed.

“It’s been an interesting process all the way through but we are where we are,”

In the US, often times an acquisition is an asset-only affair leaving debt to be managed by the previous owner but in this case, it seems the creditors are essential to Renault’s going-forward plan and need to be taken care of in order to keep production moving along for their 2016 program.

Gerard Lopez of Genii Capital managed to get the operation to the goal line with Renault and even Mr. Bernie Ecclestone helping to keep the team in the paddock. It’s unclear on the post-acquisition complexion of the team as to if Carter or Lopez will remain but a comment from the former says that the drivers will remain as announced as the contracts were agreed with by Renault. He does, however, leave the door open:

“As we all know, contracts can be broken if parties particularly want to, but they have both got contracts and therefore I think in January it’s just going to be an announcement of everything,” he said.

“I think there’s going to be team name, driver lineups, colours of car or sponsors etc.

“Pastor and his funds are part and parcel of Renault’s plans certainly for the next 12 months. I think the two drivers will be as we think,”

Perhaps those Pastor funds are important to paying off Lotus F1 debt after all? That would be a reason to keep the Venezuelan around. It’s the Pastor debt relief fund. Although I know what you’re saying…”where’s Carmen in all this acquisition talk”? Sorry, can’t help you there, no one knows.

Regardless of drivers, I will be interested in seeing who their title sponsor is and what color the car is when revealed. There was some talk of Alain Prost being involved or possibly one of the drivers being jettisoned for Jean-Eric Vergne now that Romain Grosjean is leaving for Haas F1. If I’m honest, I bet Grosjean is really bummed he couldn’t stay on because Renault have a positive history in F1 of winning and putting serious resources behind their operation. It would have been terrific to see him in the Renault…in French Racing Blue.

Hat Tip: Reuters

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MIE

The outstanding debt seems to be the £2.7 million PAYE (Pay As You Earn) tax from the employees. This is owed the HMRC (Her Majesties Revenue and Customs). So hopefully the team’s suppliers have all been paid, and it is just the UK government who is out of pocket.

Jamie Huntoon

You must believe in the tooth fairy also. I bet they owe Mer for engine. I bet they owe 75M.

BasCB

I think the engines normally get paid up front.

Tom Firth

Proton and charges outstanding to Renault are the major debts left too.

https://beta.companieshouse.gov.uk/company/01806337/charges

Brantly

Hopefully she will be my wife. You heard it here first NC

Patrick Chapman

I read an article recently that stated that Renault will have an annual budget matching Mercedes and Ferrari. If that is the case then I wouldn’t think that PDVSA funds are all that important to them. Rather I imagine that considering that 2016 will very much be a transitional year for Renault that they don’t consider that their driver lineup is all that important at this time so they may as well keep Pastor and his millions. I expect that 2017 will see some changes especially if they are on the road to recovery. We shall see.

BasCB

Wrong, those PDVSA funds are what makes the budget possible, they make up about a quarter of it!

Patrick Chapman

I don’t understand your reply. Was the article that I am quoting incorrect saying that Renault have agreed a budget for the team of + 200 million euro? Are you saying that without PDVSA that the team cannot survive. Please give me the benefit of your knowledge on this.

Tom Firth

Here’s a question as I’m sat bored. Does anyone see Renault paying off the debt as a way to improve confidence in the company and in F1 an industry? given that recently some F1 teams have been criticised for leaving behind large amounts of unpaid debt around, damaging the trust in the industry?

Joe W

Standard practice in F1 acquisitions isn’t it? The F1 entry belongs to the Ltd company – you can’t simply buy the assets because then you have a shed load of F1 gear and nowhere to race it.

Renault have bought the shares, and with them the responsibility to pay the debt. The only alternative would be to make paying the debt be a condition of the sale, but that just moves the transaction.

runnah

Money is money but that PDVSA money is about as dirty as it comes. Frankly I think it’d be a good move for the Renault to distance themselves.

Paul KieferJr

I guess we can safely say that Pastor will still be driving. God help us all. 9_9

Jamie Huntoon

The 2016 PDVSA money has already been paid and spent.

Richard Piers

Dear Negative Camber
You’ve got yourself attached to that swing axle again !
Renault will certainly have carried out due diligence, the terms of the purchase are I believe still secret and may well have to wait for the publication of the Renault balance sheet in due course. Both buyer and seller are European concerns so US custom and practice are irrelevant. The income, whatever its source sits on one side of the balance sheet and the liabilities on the other and the assets cannot be assigned to a preferential creditor particularly if a Government Agency is involved.

BasCB

As far as I understand, Lopez will still hold a 10-20% share in the team. The most complicated debt that had to be cleared (as they had a hold on property in return) was with Proton (that’s why the Lotus monicker was with the team until now) and they will need the goodwill of all suppliers if they don’t want to end up like FI did last year, not having a car ready because of outstanding bills. The Key to both the buyout/buyback financing and the budget for the next year, is that Renault is partly state owned. That, and… Read more »

Tom Firth

The money owed to Proton is from the era that the team was known as Lotus Renault GP, when Group Lotus was putting money into the team.