London, 29 October 2020 -- Moody's Investors Service ("Moody's") has today assigned a Caa1
instrument rating to the new senior secured first lien notes due 2025
issued by Aston Martin Capital Holdings Limited. Concurrently,
Moody's has affirmed the Caa1 corporate family rating (CFR) and
Caa1-PD probability of default rating (PDR) of Aston Martin Lagonda
Global Holdings plc (Aston Martin, AML, company). The
outlook has been revised to stable from negative.
The proceeds from the new rated notes, the new second lien notes
due 2026, new equity issuance and new revolving credit facility
will be used to refinance the company's current capital structure
and to support liquidity. Upon completion of the transaction and
repayment of the existing rated notes due 2022, Moody's expects
to withdraw the rating on the existing rated notes due 2022.
RATINGS RATIONALE
The rating actions balance the substantial improvements to AML's
maturity and liquidity profile from the anticipated transaction with the
fact that the overall gross debt burden increases further and the challenge
to achieve an at least neutral cash flow profile and leverage declining
towards 7.0x remains.
The transaction will extend the company's core debt funding arrangements
to 2025 and 2026 thereby substantially improving the company's maturity
profile. In addition, it will improve the company's
cash balances by around GBP240 million partly from the new equity
issuance and the additional second lien funding. The new equity
remains subject to annual general meeting (AGM) approval later this year.
While this is positive, the transaction will also increase the total
gross unadjusted debt burden further to GBP1.4 billion up from
GBP1.2 billion prior to the transaction, which had already
risen substantially from GBP0.7 billion at the end of 2018.
Moody's also views the new strategic cooperation with Mercedes-Benz
AG (MBAG, subsidiary of Daimler AG) as positive, because it
gives AML access to critical future technologies including electric/electronic
(E/E) architecture and a full range of powertrain technology, including
electric, mild and full hybrid without its need to develop it in-house
and thereby easing development risks and pressure on AML's cash
flows over the coming years. While AML is compensating MBAG via
equity stakes over several phases in the coming years, Moody's
notes that a drop of AML's share price below a certain threshold
could trigger cash payment requirements for AML.
AML also faces various operating and performance challenges partly company-specific
and partly owing to the global pandemic. As a result, 2020
revenue, profits and cash flow will be severely impacted and Moody's
expects that negative free cash flow could reach between GBP600-700
million for the full year of which just above GBP500 million already
occurred in the first nine months.
Positively, the company's dealerships and factories are largely
open again, DBX sales and deliveries ramping up and the company
has made transforming changes to its management team and strategy during
2020. The company seeks to focus on front-engine cars,
SUVs and mid-engine cars alongside its specials and with a 2024/25
aim to produce 9,000-10,000 vehicles. The company
aims as part of its strategy to deliver GBP2 billion of revenue,
GBP500 million company-adjusted EBITDA by 2024/25 and capex
of GBP250-300 million per year for 2021-2025.
However, execution risks remain high at this stage and a very substantial
recovery is required to achieve metrics that Moody's would expect
for a higher rating including a leverage of towards 7.0x and substantial
progress towards an at least neutral cash flow profile. In 2019,
the company sold 5,862 cars while retail sales to customers decreased
by 39% and wholesale sales to dealers by 61% in the nine
months to September 2020 compared to the prior year period. The
company's destocking efforts, while substantially progressing,
have also resulted in pressure on average selling prices in 2020.
In addition, the macro environment remains challenging across many
of its end markets and AML is also significantly exposed to the future
trading relationship between the UK and EU.
Nevertheless, the stable outlook reflects Moody's expectation
that performance should start to improve although significant risks remain.
It also reflects the improvement in the liquidity and maturity profile,
which provides the immediate time and flexibility to improve the financial
performance.
The Caa1 rating on the new notes reflects the changes to the capital structure,
in particular the introduction of a sizeable second lien as well as the
reduction in overall first lien debt. The guarantees for the new
notes cover 79% of AML's revenue and 113% of AML's
assets and the security package includes the main factory in Gaydon,
UK, and material intellectual property similar to the legacy notes.
However, the slightly increased new super senior revolving credit
facility due 2025 continues to have priority over the shared security
and guarantee package in the event of enforcement. Other debt also
continues to include various working capital financing arrangements and
some smaller facilities. Moody's understands that discussions
regarding the 2020 actuarial pension valuation are currently ongoing with
a statutory deadline of July 2021 and that AML proposed a change in assumptions
resulting in a deficit of GBP100 million and the U.K.
DB Plan potentially being granted security over certain equipment and
tooling. However, discussions are at an early stage and no
agreement has yet been reached.
Moody's views the company's liquidity profile as adequate
pro-forma for the transaction. As of September 2020 and
pro-forma the company has around GBP526 million of cash on
the balances sheet and limited near-term maturities, mostly
around its working capital financing arrangements and smaller loans.
However, Moody's also expects the company to remain free cash
flow negative until at least 2022. There are two maintenance covenants
related to the revolving credit facility including a net debt covenant
and minimum liquidity covenant under which Moody's expects the company
to maintain compliance.
FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS
Negative pressure on the rating could result from a lack of sufficient
progress in recovering volumes and profitability as well as lack of progress
in reducing the high negative free cash flow and high leverage levels.
A weakening liquidity profile would also pressure the ratings and so could
further increases in debt. Conversely, volume and profitability
improvements as well as free cash flow improvements would create positive
pressure on the rating and outlook. In any case, positive
pressure would require maintaining an at least adequate liquidity profile,
Moody's-adjusted debt/EBITDA improving towards 7.0x on a
sustained basis and Moody's-adjusted EBITA margin in the mid-single
digits.
PRINCIPAL METHODOLOGY
The principal methodology used in these ratings was Automobile Manufacturer
Industry published in June 2017 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1062773.
Alternatively, please see the Rating Methodologies page on www.moodys.com
for a copy of this methodology.
COMPANY PROFILE
Based in Gaydon, UK, Aston Martin is a car manufacturer focused
on the high luxury car segment. Aston Martin generated revenue
of GBP1.0 billion in 2019 from the sale of 5,862 cars.
AML is a UK-listed business and its largest shareholder is Yew
Tree Overseas Limited, a consortium led by the Executive Chairman
of the company Lawrence Stroll. Daimler AG also has a stake in
the business.
REGULATORY DISCLOSURES
For further specification of Moody's key rating assumptions and
sensitivity analysis, see the sections Methodology Assumptions and
Sensitivity to Assumptions in the disclosure form. Moody's
Rating Symbols and Definitions can be found at: https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_79004.
For ratings issued on a program, series, category/class of
debt or security this announcement provides certain regulatory disclosures
in relation to each rating of a subsequently issued bond or note of the
same series, category/class of debt, security 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
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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.
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These ratings are solicited. Please refer to Moody's Policy
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Regulatory disclosures contained in this press release apply to the credit
rating and, if applicable, the related rating outlook or rating
review.
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for additional regulatory disclosures for each credit rating.
Tobias Wagner, CFA
VP - Senior Credit Officer
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.
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JOURNALISTS: 44 20 7772 5456
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