FITCH2 Aug 2024 14:21
Fitch Affirms Aston Martin's IDR at 'B-', Senior Secured at 'B' Following Add-On Announcement
Fri 02 Aug, 2024 - 06:25 ET
Fitch Ratings - London - 02 Aug 2024: Fitch Ratings has affirmed Aston Martin Lagonda Global Holdings PLC's Long-Term Issuer Default Rating (IDR) at 'B-' with Stable Outlook and the senior secured rating of Aston Martin Capital Holdings Limited at 'B' with a Recovery Rating of 'RR3' following the announcement of GBP135 million (or US dollar-equivalent) fungible add-on to its existing US dollar and sterling senior secured notes due 2029.
Fitch views the fungible add-on as neutral for Aston Martin's ratings. The assessment is based on our assumption that the additional debt proceeds will be used to pay down the GBP90 million drawn under its revolving credit facility (RCF) and enhance its liquidity position.
The ratings reflect Aston Martin's weak financial profile, including negative EBIT and free cash flow (FCF) in recent years as well as high leverage. These weaknesses are mitigated by its strong brand value and exclusivity, recognised high-end products and historical footprint in the fast-growing luxury car segment. These strengths are demonstrated by the company's solid record of maintaining pricing power and brand appeal, despite an aging product pipeline until recently.
Aston Martin also has supplier arrangements with Mercedes-Benz Group AG (MBG; A/Stable; powertrain) and Lucid Group Inc. (battery drivetrain), which could ease the high investment requirements of the auto sector.
We forecast Aston Martin to turn FCF positive within two years, driven by a new sports line-up and lower investment needs, and assume the company will largely deliver its business plan.
Key Rating Drivers
Decreasing Cash Burn: We expect Aston Martin to turn FCF-positive within the next two years, driven by a new sports model line-up that supports profitability and a short-term reduction in capex needs. The SUV segment's DBX model should support volume growth, with good customer reception, and reduce model concentration. Our forecast that Aston Martin will be cash-flow neutral by 2025 supports the rating, but execution risk and interest-rate sensitivity remain high.
Key Shareholder Support: We believe partnerships with MBG and Lucid will ease the substantial investment challenges that small niche car manufacturers, like Aston Martin, often cannot absorb on their balance sheet. It has a strategic co-operation agreement with MBG, which provides access to key electrical components and powertrains, as well as access to Lucid's technology, including battery systems. Equity support from Aston Martin's shareholders, including Yew Tree Consortium, Saudi PIF, MBG and Geely, has reached GBP1.9 billion since 2020. We do not assume additional cash injections in our rating case, but believe they should be available if needed.
Leveraged Financial Profile: Historically high leverage constrains Aston Martin's rating. We calculate EBITDA
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