London, 03 April 2019 -- Moody's Investors Service, ("Moody's") has today affirmed
the B2 instrument ratings on the existing bonds of Aston Martin Capital
Holdings Limited. Concurrently, Moody's has also assigned
a B2 corporate family rating (CFR) and B2-PD probability of default
rating (PDR) to Aston Martin Lagonda Global Holdings plc (Aston Martin
Lagonda or AML) and withdrew the B2-PD PDR and B2 CFR assigned
at Aston Martin Holdings (UK) Limited due to reorganisation. The
outlook is stable.
The rating actions follow the company's announcement to issue $190
million of additional notes to support the company's investment
program and funding position. The new notes mirror the terms of
the existing notes.
RATINGS RATIONALE
The affirmations and rating assignments reflect the company's continued
progress in executing its strategy, resulting in good volume,
revenue and EBITDA growth. For 2018, the company reported
26% of wholesale volume growth, 25% of revenue growth
and 20% of company-defined EBITDA growth and Moody's
expects the company to continue to visibly grow these metrics in 2019
and 2020.
The ratings also continue to reflect the company's (1) strong brand name
and pricing position in the luxury cars segment; (2) good geographic
diversification; (3) degree of flexibility in its cost structure;
(4) continued model renewals and launches expected in the next few years
given its flexible production through a common architecture and (5) technical
partnership with Daimler AG, which gives AML access to high-performance
powertrain technologies and competitive e/e (electric/electronic) architecture.
At the same time, the ratings also remain weakly positioned given
high Moody's-adjusted debt/EBITDA, at 24.1x,
and continued significantly negative free cash flow after capex and interest
for 2018. Moody's also expects investment levels to remain
high, although with decreasing intensity and directionally improving
cash flow, but this is reliant on achieving continued substantial
growth in 2019 and 2020 and hence subject to execution risk and the success
of new launches such as the DBX in 2020 and Aston Martin Valkyrie.
While the $190 million of new notes, announced on 1 April
2019 by AML, will bolster its liquidity profile in the context of
high ongoing investment needs, it will also weigh on leverage.
Nevertheless, Moody's currently expects both leverage and
free cash flow to significantly improve by 2020, more in line with
the B2 CFR.
Additionally, AML's ratings are constrained by the company's
(1) limited financial strength compared to some direct peers that belong
to larger European car manufacturers; (2) efforts to service a broad
range of GT, luxury and hypercar segments and price points despite
its comparably small scale; (3) exposure to foreign exchange risk
given its fixed cost base in the UK compared to a sizeable share of revenue
generated from exports to Europe, the US and Asia though mitigated
by hedging strategies and sourcing outside of the UK; and (4) operational
risks related to the production of all models in two plants in the UK,
which is also exposing AML to Brexit-related risk.
Additionally, the instrument ratings reflect their position within
the capital structure as the major portion of debt funding, subordinated
to the revolving credit facility, but significant subsidiary guarantor
coverage.
LIQUIDITY PROFILE
Pro-forma for the $190 million notes issuance in April 2019,
the company carried GBP293 of cash and had remaining availability of GBP10
million under its committed GBP80 million revolving credit facility due
January 2022. The company has GBP 29 million of short-term
debt (aside from the revolver) and the next larger maturity would be the
ca. GBP 735 million equivalent of notes in April 2022. Moody's
expects the company to generate substantial negative free cash flow after
interest, capex and taxes in 2019, albeit perhaps lower than
in 2018, and further meaningfully reduced cash outflows in 2020.
These needs should be covered by existing liquidity, incorporating
the new notes, unless growth does not materialize or at a cost of
higher than currently guided investment needs.
OUTLOOK
The stable outlook is based on Moody's expectation of a continued strong
demand for Aston Martin's models resulting in continued strong growth
so that Moody's-adjusted debt/EBITDA of below 6.0x
will be achieved by 2020 alongside significant free cash flow improvements.
Moody's notes that the rating and outlook do not incorporate the
impact of a "no-deal Brexit", which could lead
to negative implications for outlook or rating.
WHAT COULD CHANGE THE RATING UP/DOWN
An upgrade of the ratings is unlikely in the near term considering the
execution of the Second Century Plan together with the requirement to
meet reduced emission targets and invest in alternative fuel technologies
requiring significant capex over the next couple of years limiting its
ability to generate more meaningful free cash flows. However,
Moody's-adjusted debt/EBITDA improving to below 5.0x
on a sustained basis, Moody's-adjusted EBITA margin
turning positive into the high single-digit percentage range on
a sustainable basis and Moody's-adjusted FCF/debt in high
single-digits could result in positive pressure.
Negative pressure on the ratings could come from a failure to improve
adjusted leverage to below 6.0x by 2020, profitability of
below 7% adjusted EBITA margin by 2020, inability to substantially
reduce the net cash outflows or evidence of execution issues in its growth
strategy. A significant deterioration in Aston Martin's liquidity
profile shown in very little to no headroom to cover cash needs over a
period of at least 12 months would also pressure the ratings.
The principal methodology used in these ratings was Automobile Manufacturer
Industry published in June 2017. Please see the Rating Methodologies
page on www.moodys.com for a copy of this methodology.
Assignments:
..Issuer: Aston Martin Lagonda Global Holdings plc
.... Corporate Family Rating, Assigned
B2
.... Probability of Default Rating,
Assigned B2-PD
Affirmations:
..Issuer: Aston Martin Capital Holdings Limited
....Senior Secured Regular Bond/Debenture,
Affirmed B2
Withdrawals:
..Issuer: Aston Martin Holdings (UK) Limited
.... Corporate Family Rating (Foreign Currency),
Withdrawn , previously rated B2
.... Probability of Default Rating,
Withdrawn , previously rated B2-PD
Outlook Actions:
..Issuer: Aston Martin Capital Holdings Limited
....Outlook, Remains Stable
..Issuer: Aston Martin Lagonda Global Holdings plc
....Outlook, Assigned Stable
..Issuer: Aston Martin Holdings (UK) Limited
....Outlook, Changed To Rating Withdrawn
From Stable
Based in Gaydon, UK, Aston Martin Lagonda is a car manufacturer
focused on the high luxury sports car segment. Aston Martin generated
revenue of GBP1.1 billion in 2018 from the sale of 6,438
cars. AML is a UK-listed business with a market capitalization
of ca. GBP2.4 billion as of 28 March 2019. As of
December 2018, its major shareholders include the Adeem/Primewagon
Controlling Shareholder Group, including a subsidiary of EFAD Group
and companies controlled by Mr. Najeeb Al Humaidhi and Mr.
Razam Al-Roumi, with 36.05% and the Investindustrial
Controlling Shareholder Group, an Italian private equity firm,
with 30.97%. Daimler AG has also a 4.18%
stake.
REGULATORY DISCLOSURES
For ratings issued on a program, series or category/class of debt,
this announcement provides certain regulatory disclosures in relation
to each rating of a subsequently issued bond or note of the same series
or category/class of debt or pursuant to a program for which the ratings
are derived exclusively from existing ratings in accordance with Moody's
rating practices. For ratings issued on a support provider,
this announcement provides certain regulatory disclosures in relation
to the credit rating action on the support provider and in relation to
each particular credit rating action for securities that derive their
credit ratings from the support provider's credit rating.
For provisional ratings, this announcement provides certain regulatory
disclosures in relation to the provisional rating assigned, and
in relation to a definitive rating that may be assigned subsequent to
the final issuance of the debt, in each case where the transaction
structure and terms have not changed prior to the assignment of the definitive
rating in a manner that would have affected the rating. For further
information please see the ratings tab on the issuer/entity page for the
respective issuer on www.moodys.com.
For any affected securities or rated entities receiving direct credit
support from the primary entity(ies) of this credit rating action,
and whose ratings may change as a result of this credit rating action,
the associated regulatory disclosures will be those of the guarantor entity.
Exceptions to this approach exist for the following disclosures,
if applicable to jurisdiction: Ancillary Services, Disclosure
to rated entity, Disclosure from rated entity.
Regulatory disclosures contained in this press release apply to the credit
rating and, if applicable, the related rating outlook or rating
review.
Please see www.moodys.com for any updates on changes to
the lead rating analyst and to the Moody's legal entity that has issued
the rating.
Please see the ratings tab on the issuer/entity page on www.moodys.com
for additional regulatory disclosures for each credit rating.
Tobias Wagner, CFA
Vice President - Senior Analyst
Corporate Finance Group
Moody's Investors Service Ltd.
One Canada Square
Canary Wharf
London E14 5FA
United Kingdom
JOURNALISTS: 44 20 7772 5456
Client Service: 44 20 7772 5454
Peter Firth
Associate Managing Director
Corporate Finance Group
JOURNALISTS: 44 20 7772 5456
Client Service: 44 20 7772 5454
Releasing Office:
Moody's Investors Service Ltd.
One Canada Square
Canary Wharf
London E14 5FA
United Kingdom
JOURNALISTS: 44 20 7772 5456
Client Service: 44 20 7772 5454
