RE: Sp31 Oct 2020 01:59
The new bonds are rated triple-C by rating agency S&P, in the lowest reaches of the “junk” bond market, and its new funds will be used to repay the looming debt pile worth over £900m, as well as the £20m loan it took out through the UK government's coronavirus business support scheme.
“The triple-C rating properly reflects the risks,” said Luke Hickmore, investment director at Aberdeen Standard Investments. “There's hardly any room for a mis-step for this business.”
The double-digit coupon marks one of the highest yields on offer from a European company this year. The new bonds are secured against Aston's assets, including its production facilities in Warwickshire and its intellectual property.
The carmaker is paying an even higher 13.5 per cent interest on £259m of new debt that ranks behind these secured bonds. Aston has privately placed this debt with unnamed investors, which also received the added incentive of equity warrants that could hand them 5 per cent of the company.
Earlier this week, the Warwickshire-based manufacturer forged closer ties with German carmaker Daimler as it seeks to push into electric vehicles.
The deal allows Daimler to raise its stake in Aston Martin to 20 per cent by 2023 in exchange for permitting the luxury carmaker access to its hybrid and electric vehicle technology. The new bond’s prospectus disclosed that Aston might have to make cash payments to the German group if its share price fell below a certain level and warned that this “could have a material adverse effect on our business”.
While the new fundraising will leave the company with more than £500m of cash on its balance sheet, several investors said they were unconvinced that the end of the luxury carmaker’s troubles is in sight.
“Its debt burden has just grown and grown and earnings have never come with it,” said one bond fund manager, who added that pinning hopes on “the new sugar daddy” — Daimler — was naive.
The pandemic has added to Aston Martin's existing woes. The company made £259m total losses in the nine months to September 2020, compared to an £111m loss in the same period last year.
As of October 22, 85 per cent of Aston Martin's car dealers globally had fully reopened, according to the prospectus. The carmaker aims to sell 10,000 vehicles a year by 2025, up from fewer than 6,000 sold last year, with hopes pinned on the success of its first sports utility model, the DBX.
Mr Hickmore questioned whether the sales targets were realistic: “How are they going to get dealerships open and people enthused about owning a DBX right in the middle of the worst economic environment we've seen?
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