Aston Martin is marketing a multi-currency high-yield bond this week as part of a broader refinancing package to shore up its balance sheet. Daimler's new upsized stake in the luxury carmaker is set to be the centrepiece of the bond's marketing, with bankers hoping that will be enough to get the deal through a volatile market before the US election.
Joint global coordinators JP Morgan (sole physical bookrunner and B&D) and Barclays are marketing an £840m-equivalent senior secured five-year non-call two bond for the company, split between US dollars and sterling notes. Initial price thoughts are high 8s to 9% for both currencies. While the split has not yet been determined, the bulk of the deal is expected to be in US dollars, with around a £285m sterling tranche, said sources.
The bond comes alongside US$335m in second lien notes and £125m of additional equity. Proceeds from the deal will be used to redeem all other senior secured debt, to repay and cancel Aston Martin's £20m loan received under the UK's Coronavirus Large Business Interruption Loan Scheme, and to put cash on its balance sheet.
"The whole structure has been based around sizing the business plans to get through trough cash [months]," said a source familiar with the situation. "[Aston Martin] is likely to be cashflow negative for the next 24 months. This deal will put £600m in cash on the balance sheet - and that is enough cash to execute the company's business plan."
Still, the timing of Aston Martin's deal, coming in a week that has been characterised by low primary supply and volatility before the US presidential election, puzzled some bankers away.
"It's all related to the M&A piece," said the source familiar. "This deal relied on many things coming together. But the Daimler announcement is key, and all marketing is focused on that. It's a transformation piece to the credit story, and it's driven a lot of the timing decisions."
Shares in Aston Martin jumped as much as 12.8% after it said late on Tuesday that Daimler subsidiary, Mercedes-Benz, would lift its stake in the British carmaker to up to 20% by 2023.
Yields on the company's bonds plummeted after the announcement. Aston Martin's 5.275% April 2022 sterling bonds dropped to 5.2%, down from 14%.
"Before the announcement of the stake acquisition by Daimler, Aston Martin's bonds were trading at a distressed level - they couldn't have done this deal without that news," said one high-yield banker away. "Now, bondholders expect to be redeemed, so bonds have rallied. Investors are also hopeful that Daimler will continue to either increase their stake or at least have a much bigger say in the management and organisation of the company."
Still, the banker away said the timing of the deal puzzled him.
"[Aston Martin] has a couple of years left on the bonds, and you could argue why not wait another year to see if they've got better momentum in terms of operating results? Still, they probably want to have long-term financing in place while they're executing the new business plan."
Leads are referencing Jaguar Land Rover's recent trade as one comparable. JLR landed a US$700m 5NC2 US dollar bond in early October at 7.5%. It is now trading at 7.40%.
Aston Martin's bond came to market after lead bankers pre-placed US$335m of second lien notes maturing in 2026 with investors. It also has a £125m capital increase, now fully subscribed. Rounding out the refinancing is an £87m five-year revolving credit facility, which will replace an £80m RCF that was due to mature in January 2022.
The high-yield bond has a "significant" shadow book, said the source. "Obviously, this is not the perfect market but [the bond] has a lot of momentum from the second lien," he said.
COVENANT LOCKDOWN
The financing package is intended to improve Aston Martin's balance sheet, leaving it with around £600m in cash.
Despite the new Daimler stake, which comes alongside positive news around DBX sales - Aston Martin's new luxury SUV model - bankers are not leaving the bond's execution to chance and have put together a watertight set of covenants for investors.
High-yield analytics firm 9fin described the bond as having a "conservative covenant package, with even typical high-yield features such as asset sale carve-outs and restricted payments ... capacity removed".
Aston Martin has effectively left itself with almost zero debt capacity in its new deal documents - around £50m - said the source. In addition, the company has tightened up asset sales and restricted payments capacity.
"This is the whole point of the deal," said the source, "so Aston Martin does not have to come back to the market again. Compared to what you see in the rest of the market, they have tightened everything, so they can show investors that they will do what they say that they are going to do: investing in their business."
While the market is fairly constructive, uncertainty remains. Aston Martin announced its bond on Tuesday evening, but the following day volatility was up again, on the back of increasing coronavirus cases and the potential for further lockdowns in Europe. In addition, the market was down as investors realised a fiscal aid bill was unlikely to be sealed before the US election.
"Covid-19 concerns are definitely front and centre," said the source. "But Aston Martin is a really good example of this. Wales is in a lockdown right now - which is where the company's main factory is. But the DBX factory is Covid 19-secure and producing cars like it normally would. As credit investors, we have to take a glass-half-empty approach to life. But look at the facts: Wales is in a lockdown - which is as bad as it gets, and the production facilities are still running."
Joint bookrunners on Aston Martin's bond are Credit Suisse, Deutsche Bank and HSBC. The company carries Caa2/CCC ratings.