Aston Martin Faces Turbo-Charged Debt Costs After Weak Profits

2020-01-08 13:37:09.188 GMT
By Laura Benitez

​(Bloomberg) -- Aston Martin Lagonda Global Holdings Plc, the British maker of fast cars, is set to pay a 15% coupon on a planned $100 million debt financing, according to people familiar with the proposed terms of the bonds. That’s the top end of previous guidance between 12% and 15% and comes after the company reported a steep annual loss on
Tuesday.

It’s also three percentage points more than what investors charged in October for a $150 million bond, adding pressure on a firm that needs to keep raising cash to fund operations. And it’s well above the 8.7% market average for comparably-rated companies, according to data compiled by Bloomberg.

A spokesman for Aston Martin declined to comment on the new financing.

“Clearly, the delayed draw notes are being issued on very expensive terms for the company,” said Olivier Monnoyeur, a
portfolio manager at BNP Paribas Asset Management, which oversees 436 billion euros ($485 billion) of assets.

The earlier bond, which was privately placed with investors, included limits on the company’s leverage as a condition for it drawing an additional $100 million on a secured basis at a lower 12% coupon, according to the people familiar
with the terms who asked not to be named discussing private information.

That limit has since been breached, data analysis firm Aggredium Finance Ltd. said, meaning Aston Martin will be forced
to issue any new debt on an unsecured basis at a higher 15% coupon.

The new financing will bring its total outstanding debt to over 1 billion pounds ($1.3 billion) that’s due to mature in two
years.

“Aston Martin are maxed out in terms of debt capacity and need either to grow into their cash flow or to strengthen the
balance sheet through an equity raise, ideally a combination of the two,” said BNP Paribas’s Monnoyeur.

Rising Leverage

The company said in its trading statement Tuesday that it expects debt to be 6.9 to 7.6 times earnings for the end of 2019 following what Chief Executive Officer Andy Palmer called a “very disappointing” year.

Meanwhile, Aston Martin’s avenues for further financing are narrowing amid weak operating performance and its year-end cash balance stood at 107 million pounds, according to the trading statement.

The carmaker is also spending more cash than it generates, analysts at Lucror Analytics said in a note to clients on
Wednesday.

A new investor buying a stake may provide a solution to its financial pressures and the carmaker said on Tuesday that talks with potential partners are ongoing. A pickup in sales would also help and the company said it got 1,800 orders for its new DBX model, meeting a condition that will allow it to obtain the follow-on $100 million financing.