Aston Martin bonds shaken after credit downgrade

Aston Martin’s bonds are under pressure after a rating agency downgraded its debt, providing a further test for the newly listed luxury carmaker that last week issued a surprise profit warning.

Moody’s cut the Warwickshire-based company’s credit rating on Monday from B2 to B3, at the very lower end of its speculative-grade ratings, with a stable outlook. The downgrade “reflects the lack of progress in terms of volume growth and profitability for 2019”, according to a note from Tobias Wagner, senior analyst at Moody’s, as well as the “weak and competitive market environment”.

Shares in Aston Martin have fallen ever since their high-profile listing last October. But the downgrade means that its bonds are now also taking a hit.

The yield on the carmaker’s £285m bond maturing in 2022, which was issued in 2017, climbed 0.48 percentage points to 8.67 per cent as investors sold the debt. Investors also moved out of the company’s $400m bond with the same maturity, sending the yield up nearly half a percentage point to 9.82 per cent. Both bonds have reached their lowest price since January, according to Bloomberg data.

The high-end car manufacturer last week slashed its profit margin forecast for the year from 13 per cent to 8 per cent. It also cut the number of cars it expects to make this year, from 7,100 to 6,200-6,500, blaming the impact of economic uncertainty in the UK and Europe.

The carmaker of choice for fictional British spy James Bond has experienced a tough 10 months since it listed on the London Stock Exchange. An economic slowdown and drop in demand for high-end cars have battered Aston Martin’s share price, sending it plummeting 69 per cent since the initial public offering, but the damage had until now been limited to its equity.

“The market for high-performance luxury vehicles is typically more resilient to market pressures compared to higher-volume premium brands,” analysts at research firm CreditSights said in a note. “The steep reduction in . . . production levels at Aston Martin . . . highlights the level of market weakness,” they added.

The credit downgrade by Moody’s did not take into account the impact of a potential no-deal Brexit, which could further hurt the carmaker. The prospect of the UK crashing out of the EU without a deal has increased since Boris Johnson became UK prime minister last week and concerns have sent the pound to a two-and-a-half year low.

Aston Martin’s prospects could deteriorate further, according to credit research company Lucror Analytics: “A negative outlook could be considered in the light of . . . a potential no-deal Brexit.”


By Nikou Asgari