Collateral damage

8 May 2020 By Alec Macfarlane

The coffee chain scandal hit shares in Car Inc, a rental firm chaired by Luckin founder Lu Zhengyao. Lu also leads Ucar, whose banks could dump a slug of Car Inc pledged as collateral, triggering a change of control and dragging in Warburg Pincus. It’s a lesson in key-man risk.

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Ratings agency S&P on April 27 downgraded Car Inc and its U.S. dollar bonds to CCC from B– with negative outlook, citing heightening liquidity pressure and challenges as lenders monitor the Chinese auto rental company’s shareholding structure and operating performance.

S&P said that the Hong Kong-listed company’s remaining liquidity may not be sufficient to cover its maturities over the next 12 months, including $300 million of bonds due in February 2021.

It is S&P's second downgrade of Car Inc in less than a month after an accounting scandal at Luckin Coffee affected the company’s access to capital markets and operations.

Car Inc’s chairman is Lu Zhengyao, who also co-founded the embattled coffee chain.

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