London, 01 July 2020 -- Moody's Investors Service, ("Moody's") has today downgraded the
existing instrument ratings on Aston Martin Capital Holdings Limited's
senior secured notes to Caa2 from Caa1. Moody's also affirmed
Aston Martin Lagonda Global Holdings plc's (Aston Martin Lagonda,
company or AML) corporate family rating (CFR) at Caa1 and probability
of default rating (PDR) at Caa1-PD. The outlook remains
negative.
RATINGS RATIONALE
The downgrade of the existing secured notes reflects on the one hand the
currently weak positioning of the CFR and on the other hand the rising
amount of other debt ranking ahead of the rated notes, including
the drawn super senior revolving credit facility and new GBP20 million
government-backed loan. The company also retains its recent
inventory repurchase funding and may enter into further up to GBP50
million of trade financing alongside its existing wholesale financing
facility. Accordingly, Moody's believes the position
of the rated notes in the capital structure has weakened.
Moody's positively notes the additional equity raise so far this
year, which supports a currently sufficient liquidity profile.
At the same time the decision to partly draw the delayed draw notes as
well as the new government-backed loan add to the debt burden on
the business.
The CFR and PDR remain weakly positioned considering the challenges and
uncertainties for the business. Those include (i) restoring its
operations after temporary shutdowns of production sites and dealerships,
(ii) a successful execution on production ramp up and sales targets for
its first SUV DBX, (iii) restoring profitability and reducing the
currently high cash absorption through a more sustained cash flow profile.
In addition, the company's borrowings continue to rise to
around GBP1.2 billion as of Q1 2020 and pro-forma for
the new notes and government loan issuance, which is up from GBP704
million at the end of 2018. As a result, Moody's-adjusted
debt/EBITDA will remain very weak for 2020 and likely 2021 while free
cash flow remains negative. As a UK-based manufacturer the
company also remains exposed to uncertainty from a potential "no-deal"
Brexit. Positively, Moody's notes the company's
dealerships are largely open again, DBX production has scaled up
at its St Athan facility and dealership inventories have declined significantly.
The large equity raises this year including the GBP152 million secured
in June 2020 should also provide the company with the leeway to execute
on its strategic reset.
Given the additional funding received this year, Moody's considers
the liquidity profile currently as adequate. However, the
DBX ramp up and reduced business activity especially in Q2 2020 lead to
significant ongoing cash outflows. While the cash flow profile
should improve in the second half of 2020 also depending on macro development,
it may take a prolonged period to achieve a sustainable cash flow profile.
The company also has a range of working capital financing arrangements
including its inventory repurchase programme (GBP39 million outstanding
as of March 2020) and a wholesale financing facility (GBP100m outstanding
as of December 2019) as well as restricted cash of around GBP36 million
linked to an overdraft of similar size. The revolving credit facility
of GBP80 million is essentially fully drawn and due in January 2022
while the secured notes are due in April 2022.
Additionally, AML's rating remains 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; and (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. However, the ratings
also reflect 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.
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 the company 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 and Moody's also regards the coronavirus outbreak
as a social risk under our ESG framework, given the substantial
implications for public health and safety. The Auto sector has
been one of the sectors most significantly affected by the shock given
its sensitivity to consumer demand and sentiment. AML is vulnerable
to shifts in market sentiment in these unprecedented operating conditions
and remains vulnerable to the outbreak continuing to spread. Governance
factors considered also include a tolerance for a high debt burden and
debt-funded growth, recent change of both the board and management
team, as well as the challenge to restore credibility given the
considerable deterioration of the company's performance since mid-2019.
RATING OUTLOOK
The negative outlook continues to reflect the challenging overall market,
particularly at the lower end of the luxury market. It also reflects
the uncertainty regarding the company's performance and financial metrics
in 2020 and 2021, the currently elevated risk profile from the critical
nature of a successful DBX production ramp up and sales performance,
and persistent negative free cash flow (after capex, interest).
A stabilization of the outlook would likely require progress towards a
more sustainable free cash flow and deleveraging profile.
FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS
A successful execution of the DBX launch, profitability improvements
and free cash flow improvements would create positive pressure on the
rating and outlook. This would also require an improved 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. 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 high negative free cash flow and high leverage levels also in
light of the gradual approaching notes maturities in 2022. A lack
of improvement in Aston Martin's liquidity profile would also pressure
the ratings and so could further increases in debt.
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.
Based in Gaydon, UK, Aston Martin Lagonda 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 5,905
cars. AML is a UK-listed business and its major shareholders
include Yew Tree Overseas Limited, a consortium led by the Executive
Chairman of the company Lawrence Stroll as well as the Adeem/Primewagon
Shareholder Group, including a subsidiary of EFAD Group and companies
controlled by Mr. Najeeb Al Humaidhi and Mr. Razam Al-Roumi,
and the Investindustrial Shareholder Group, an Italian private equity
firm. Daimler AG has also a single digit 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
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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
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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
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to rated entity, Disclosure from rated entity.
The ratings have been disclosed to the rated entity or its designated
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Regulatory disclosures contained in this press release apply to the credit
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Moody's general principles for assessing environmental, social
and governance (ESG) risks in our credit analysis can be found at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1133569.
At least one ESG consideration was material to the credit rating action(s)
announced and described above.
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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:
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