London, 26 September 2019 -- Moody's Investors Service, ("Moody's") has today changed the outlook
to negative from stable for Aston Martin Lagonda Global Holdings plc (Aston
Martin Lagonda, company or AML) and Aston Martin Capital Holdings
Limited. Concurrently, Moody's assigned a B3 instrument
rating to Aston Martin Capital Holdings Limited's new $150
million senior secured notes. Moody's also affirmed the B3
corporate family rating (CFR) and B3-PD probability of default
rating (PDR) of AML as well as the B3 ratings on the existing secured
rated notes issued by Aston Martin Capital Holdings Limited.
"The negative outlook reflects the increased debt from the notes
issuance, which will result in continued very high leverage for
at least the next 24 months and delay deleveraging further.",
says Tobias Wagner, VP Senior Analyst at Moody's. "The
continued high cash outflows for at least 2019 and 2020 also weigh on
rating and outlook, but the new notes should provide the liquidity
needed to see the company through the critical upcoming SUV DBX launch
unless the company's cash flow weakens from Moody's current
expectations."
RATINGS RATIONALE
The outlook change to negative reflects the increased debt from the notes
issuance, which will result in continued very high leverage for
at least the next 24 months and delay deleveraging further. Including
the April 2019 notes issuance, the company added ca. GBP272
million of additional notes in 2019 with total reported borrowings rising
to GBP1 billion, including lease liabilities under IFRS 16.
Moody's estimates that Moody's-adjusted debt/EBITDA
will remain well above 10x in 2019, 2020 and possibly 2021.
The company also experienced a significant cash consumption in the first
half of 2019, particularly in the second quarter, and Moody's
expects significant further outflows in the first half of 2020 around
the DBX launch so that Moody's-adjusted free cash flow will
remain negative for at least 2019 and 2020.
The high leverage, continued negative free cash flow and critical
nature of the DBX launch to the company's financial performance
position the ratings weakly. However, the rating affirmations
reflect Moody's understanding that the company is currently on track
regarding the DBX launch and even a moderate success of the DBX would
result in a positive trajectory for both leverage and free cash flow in
2020 and beyond. Nevertheless, the company may not achieve
its volume, revenue and profitability targets in a weakening demand
and competitive market environment. The risks related to Brexit
and US tariffs also remain including trade disruptions, higher costs
or from currency movements.
The new $150 million senior secured notes and up to $100
million delayed draw notes that can be drawn once 1,400 firm DBX
orders are received, should provide the liquidity needed to see
the company through the critical upcoming SUV DBX launch unless the company's
cash flow weakens from Moody's current expectations.
Additionally, AML's ratings remain constrained by (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.
However, the ratings also reflect the company's good growth in 2018,
which should resume in 2020. It also reflects the (1) strong brand
name and pricing position in the luxury cars segment; (2) good geographic
diversification; (3) degree of flexibility in its cost and investment
structure; (4) continued model renewals and launches expected in
the next few years given its flexible production through a common architecture
and (5) technical partnerships, which give AML access to high-performance
powertrain technologies and competitive e/e (electric/electronic) architecture.
Moody's considers the company's liquidity profile currently
as adequate pro-forma for the notes issuance. As of June
2019 and pro-forma for the issuance, the company had GBP153
million of cash and the committed undrawn GBP80 million revolving
credit facility due January 2022 available (safe for a small guarantee
carve out). The $100 million additional delayed draw notes
that the company can draw within the next nine months if 1,400 firm
orders for the DBX have been received are effectively committed (subject
to the drawing condition) and hence could also provide additional liquidity
support. After a significant cash outflow in the first half of
-GBP156 million excluding the April notes issuance, Moody's
currently expects the second half to be slightly cash flow generative
(again excluding the new notes) but large cash outflows will likely resume
in the first half of 2020, possibly exceeding the first half of
2019, around the DBX launch. As of June 2019, the company
also had GBP53 million of other debt and short-term overdrafts
drawn (aside from the revolver) and the next larger maturity would be
the notes in April 2022.
The newly assigned B3 rating for the senior new secured notes as well
as the affirmed B3 rating for the existing secured notes, all issued
by Aston Martin Capital Holdings Limited, reflects their position
within the capital structure as main debt instruments, but subordinated
to the GBP80 million super senior revolving credit facility.
The notes all share significant guarantor coverage from subsidiaries covering
86% of the group's-adjusted EBITDA and assets.
The security package comprises share pledges, intercompany receivables,
bank accounts, the main Gaydon factory and intellectual property.
Environmental considerations are relevant for auto manufacturer as tightening
of emissions standards and regulations across most major markets restrict
the ability to reduce certain investments. However, Moody's
also notes that Aston Martin Lagonda as a smaller, luxury-focused
producer is not exposed to the same severity to these risks as larger
mass manufacturers, for example regarding regulation. Social
considerations are also important, because changing consumer trends
can affect demand. Governance factors considered also include a
tolerance for high leverage and debt-funded expansion.
WHAT COULD CHANGE THE RATING UP/DOWN
Although unlikely in the near-term, successful execution
of the DBX launch alongside visible growth in scale, profitability
and free cash flow improvements would create positive pressure on the
rating and outlook. This would include Moody's-adjusted
debt/EBITDA improving to below 6.0x on a sustained basis,
Moody's-adjusted EBITA margin above 7% on a sustainable
basis and Moody's-adjusted FCF/debt becoming positive. Conversely,
further negative pressure on the rating could come from a lack of sufficient
volume and profitability improvements, for example from weaker than
expected DBX sales, and a resulting ongoing negative free cash flow
and high leverage levels. A 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. Further
increases in debt could also lead to negative pressure.
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 Capital Holdings Limited
....Backed Senior Secured Regular Bond/Debenture,
Assigned B3
Affirmations:
..Issuer: Aston Martin Lagonda Global Holdings plc
.... Corporate Family Rating, Affirmed
B3
.... Probability of Default Rating,
Affirmed B3-PD
..Issuer: Aston Martin Capital Holdings Limited
....Backed Senior Secured Regular Bond/Debenture,
Affirmed B3
Outlook Actions:
..Issuer: Aston Martin Lagonda Global Holdings plc
....Outlook, Changed To Negative From
Stable
..Issuer: Aston Martin Capital Holdings Limited
....Outlook, Changed To Negative 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 6,441
cars. AML is a UK-listed business with a market capitalization
of ca. GBP1.2 billion as of 5 September 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 28.84% 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, 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
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
