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Rating Action:

Moody's downgrades Aston Martin Lagonda to B3; outlook stable

29 Jul 2019

London, 29 July 2019 -- Moody's Investors Service, ("Moody's") has today downgraded Aston Martin Lagonda Global Holdings plc's (Aston Martin Lagonda, company or AML) corporate family rating (CFR) to B3 from B2 and its probability of default rating (PDR) to B3-PD from B2-PD. Concurrently, Moody's has also downgraded the instrument ratings on the existing senior secured bonds issued by Aston Martin Capital Holdings Limited to B3 from B2. The outlook on both entities remains stable.

"The downgrade of Aston Martin Lagonda's ratings reflects the lack of progress in terms of volume growth and profitability for 2019, following the company's trading statement, and hence continued high negative free cash flow and high leverage", says Tobias Wagner, VP - Senior Analyst at Moody's. "AML's weaker performance in 2019 raises the stakes for a successful execution of the upcoming SUV DBX launch. Also given the ongoing weak and competitive market environment, Moody's now considers it unlikely that leverage and free cash flow will be in line with a B2 rating by 2020."

RATINGS RATIONALE

The downgrades follow AML's release of a trading statement on 24 July 2019, highlighting a weak second quarter 2019 performance and meaningfully revising down its guidance for volume growth and profitability in 2019. The company also mentioned that it is anticipating that the weakness will continue for the remainder of the year and that it is planning prudently for 2020. Given the lack of progress in growing volumes, improving profitability and cash flows in 2019 and given greater execution risks to AML's growth plans into 2020 and beyond, Moody's expects Moody's-adjusted debt/EBITDA and free cash flow for at least 2019 and 2020 to be more commensurate with a B3 rating.

Aston Martin Lagonda's 2019 guidance revisions include wholesale volumes (-11% mid-point), now expected at around similar levels to 2018, a company-adjusted EBITDA margin of 20% instead of 24% and a slightly revised capex and R&D expectation of GBP300 million instead of GBP320-340 million for the year. While the company also highlighted that it remains on track regarding important launches and drivers of volume growth over the next 12-18 months, such as its first SUV DBX or the high-end Aston Martin Valkyrie, the significant changes to wholesale volume expectations and efforts to manage inventory ahead of those launches alongside a weak and competitive market environment, raise the execution risks for the significant planned step up in performance in 2020.

Moody's considers the company's liquidity profile currently as adequate, but the company's large negative free cash flow (after capex, interest) for 2019 and likely continued negative free cash flow in 2020 mean cash balances will fall fast from current levels. As of March 2019 and pro-forma for the $190 million notes issuance in April 2019, the company carried GBP280 million of cash. The committed GBP80 million revolving credit facility due January 2022 is essentially fully drawn. As of December 2018, the company had GBP 29 million of short-term debt (aside from the revolver) and the next larger maturity would be the notes in April 2022. Given the continued need to invest into its future model line-up and lack of growth, the company's liquidity profile has weakened in Moody's view.

Rating Outlook

The stable outlook reflects Moody's expectation that despite the weakened performance in 2019, the company will return to visible growth in 2020 on the back of the SUV DBX launch and its currently adequate liquidity profile. We note that the rating and outlook do not incorporate the impact of a potential "no-deal Brexit" or future trade barriers such as tariffs, which could lead to negative implications for outlook or rating.

What Could Change The Rating Up/Down

Successful execution of the DBX launch alongside visible growth in scale, profitability and free cash flow improvements would create upward pressure on the rating. 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, 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 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.

LIST OF AFFECTED RATINGS

..Issuer: Aston Martin Capital Holdings Limited

Downgrades:

....BACKED Senior Secured Regular Bond/Debenture, Downgraded to B3 from B2

Outlook Actions:

....Outlook, Remains Stable

..Issuer: Aston Martin Lagonda Global Holdings plc

Downgrades:

.... LT Corporate Family Rating, Downgraded to B3 from B2

.... Probability of Default Rating, Downgraded to B3-PD from B2-PD

Outlook Actions:

....Outlook, Remains Stable

PRINCIPAL METHODOLOGY

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.

COMPANY PROFILE

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. 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

No Related Data.
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