Aston Martin lets creditors Die Another Day
BREAKINGVIEWS-Aston Martin lets creditors Die Another Day The author is a Reuters Breakingviews columnist. The opinions expressed are his own.
By Neil Unmack
LONDON, Aug 7 (Reuters Breakingviews) - One of the odder moments in Pierce Brosnan’s stint as James Bond was an invisible Aston Martin AML.L in "Die Another Day". Lenders to the luxury marque have discovered a real world twist: a carmaker with assets that vanish from sight thanks to a new financing. The villain is loose documentation that makes high-yield debt hard to invest in.
Lenders to Aston must be used to a wild ride. Since listing in 2018, the carmaker has faced numerous bumps on its path to profitability. it booked £2 billion in negative free cash flow, and required emergency equity raises from backers including Mercedes-Benz MBGn.DE, the Saudi Public Investment Fund and Lawrence Stroll, who still holds a 32% stake.
The biggest shock, however, came from the company’s decision last month to raise £550 million. That is not in itself bad news. It means Aston may not need extra funding until perhaps 2028, per CreditSights estimates.
The bone of contention is how it got it. Rather than borrow from existing bondholders, as some wanted, Aston pledged a load of assets to new lenders, led by BlackRock’s BLK.N private credit arm HPS. Aston hasn’t disclosed what those assets are, but they are likely to include its prized intellectual property. Some of that could end up being sold to Authentic Brands, in which HPS owns a stake.
While the assets still sit within the Aston group, the fear is that there will be less value left for the existing bondholders if the company hits the wall, making it easier for the group to impose a debt haircut. The group recently also sold its Formula 1 naming rights to a company controlled by Stroll, in which HPS owns a stake. Aston’s 2029 bond is now trading at less than 60% of face value, having fallen from 82% in June, per LSEG data.
Hiving off assets for new borrowing is an increasingly common technique for challenged borrowers, such as tycoon Patrick Drahi’s Altice companies. Aston’s case is unusual, because it’s a listed company, with high-profile shareholders. While it seems bizarre that the nature and value of the pledged assets haven’t been disclosed, that is not required under the bonds’ Channel Islands listing, according to one person familiar with the situation.
Aston’s case highlights the challenges investors face in dealing with bond and loan terms that favour borrowers over lenders. Its bonds included a so-called J. Crew Blocker, a clause designed to prevent transfers of IP. But other clauses, such as loose limits on transfers to group entities that don’t guarantee existing creditors, left the door open. And the bond covenants were loose enough to give Aston wriggle room to raise money from a third party without needing bondholder approval.
Bondholders are already threatening to take Aston to court, implying they think the new debt may not be allowed, as Aston maintains. Some court cases have gone in damaged creditors’ favour: last month a court awarded damages to lenders left out of U.S. group Serta Simmons Bedding’s financing, for example. The concern for the broader market for high-yield debt, however, is that loose bond documentation may be as hard to kill as James Bond himself.
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CONTEXT NEWS
A group of Aston Martin Lagonda Global Holdings’ creditors have threatened legal action against the company over a recent financing, the Financial Times reported on August 3.
Creditors are worried that the transaction moves assets beyond their reach and involves a potential sale of a share in the company’s intellectual property rights, the FT reported.
Aston Martin on July 22 announced a new debt financing, split between a £450 million term loan and a £100 million facility that can be drawn down over time. The lead investor in the funding was HPS, the private credit arm of BlackRock.
"The new financing is secured against certain of the Group's assets situated in a newly incorporated subsidiary, together with certain other assets of the Group,” Aston Martin said on July 24, without providing further details.
(Editing by George Hay; Production by Varun H K and Streisand Neto)
((For previous columns by the author, Reuters customers can click on UNMACK/neil.unmack@thomsonreuters.com))