Aston Martin Raises $150 Million to Help Fund SUV Launch

(Bloomberg) -- Aston Martin Lagonda Global Holdings Plc raised $150 million in a steeply priced bond sale, responding to liquidity concerns as the luxury carmaker bets that a future SUV model will boost cash flow.

The debt issue comes with a 12% coupon, double the cost of Aston Martin’s existing bonds. A further $100 million of notes could be available next year, according to a statement Wednesday, though only if the Gaydon, England-based company achieves specific sales targets for the new DBX.

Aston Martin is staking future growth on its first ever SUV, which will be built at a plant in Wales that opened in June. In the meantime, the carmaker has been treading water while confronting a weaker auto market and challenges from Brexit and global trade wars that have seen the group lose more than two-thirds of its value since listing almost a year ago.

Chief Executive Officer Andy Palmer said the bond issue amounts to “insurance to make the bridge to DBX.” He said the company remains confident about demand for the model, with conditions for the potential second tranche of bonds specifying orders of 1,400 SUVs by the middle of next year.

Bloomberg reported this month that the company was planning a return to the bond market after a $190 million placement in April.

Standard & Poor’s cut its long-term rating on Aston Martin debt, already at junk level, one notch to CCC+, saying the group has “reached the ceiling in terms of the amount of term debt and cash interest burden it can sustainably service.” S&P ascribed the debt a negative outlook, which it said reflects pressure on margins, high cash burn, and a leverage of 30 times 2019 earnings it described as very high given risks from Brexit, possible U.S. tariffs and the DBX launch.

High-Risk

Half the 12% coupon on the new bond will be paid as PIK interest, meaning Aston Martin has the option of servicing it by raising new debt, usually seen as a high-risk strategy. Funding costs may rise further, with the possibility of the second tranche being issued as unsecured debt with a 15% coupon.

Aston Martin bonds issued 2017 and maturing April 2022 fell around 2.5% on the news of the new debt and its terms. The company’s shares fell as much as 6.1% and were trading 5.3% lower at 544.20 pence as of 11:48 a.m. in London, valuing it at 1.2 billion pounds ($1.5 billion).

Aston Martin has slumped 55% this year and is down 71% since its initial public offering on Oct. 3 last year. During that same period, Ferrari NV, whose shift from a super-luxury niche to higher volume production Aston Martin is seeking to emulate, has gained 14%.

Palmer said the DBX will be unveiled without the camouflage livery used to disguise the looks of new cars in December and be on the road toward the end of the second quarter. He said existing customers have already been given “a peek behind the curtain” and that the vehicle has been favorably received.

“If you speak to most people, the concerns are ‘can they get to DBX and do they have enough cash?’” the CEO said in an interview. “Both these tranches are closed and we will have money in the bank for the first in due course. That should allay fears.”

Crowded Market

Even so, the DBX will enter an increasingly crowded market for luxury sport-utility vehicles, with the Porsche Cayenne and Macan, Bentley Bentayga, Lamborghini Urus and Rolls-Royce Cullinan all beating it to the showroom.

Aston Martin aims to lift annual production to 14,000 vehicles by 2023 with the help of the DBX, more than double last year’s sales figure of 6,441 cars. The company is targeting 6,300 to 6,500 sales this year.

The U.K. carmaker generated about 900,000 pounds of cash from operations in the first half, the lowest since it started to disclose earnings, data compiled by Bloomberg show. Palmer said it remains on track to meet analyst estimates for full-year earnings, subject to adjustments to reflect the impact of the issuance of the bond issue.

--With assistance from Thomas Mulier.

To contact the reporters on this story: Siddharth Philip in London at sphilip3@bloomberg.net;Laura Benitez in London at lbenitez1@bloomberg.net

To contact the editors responsible for this story: Tara Patel at tpatel2@bloomberg.net, Christopher Jasper, Andrew Noël

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