* James Bond carmaker wins over bond investors
* Pitches turnaround story based on new models
* Adjustments to earnings numbers in focus
By Robert Smith
LONDON, March 31 (IFR) - Aston Martin is set to successfully
raise public debt for the first time in five years, winning over
yield-hungry investors with a turnaround plan that promises to
turn its cashflow positive.
The UK carmaker, famous for its connection to the James Bond
film franchise, has pitched to bond buyers that its recent
launch of its first new model in years will dramatically bolster
earnings - guiding for £160-£165m of Ebitda this year, up from
£101m last year and just £61m in 2015.
And a strong reception has set the company up to price a
£550m-equivalent five-year non-call two senior secured bond
later on Friday, having upped the size of the B3/B- rated deal
by £20m on the back of demand.
A US$400m tranche will price at 6.50% yield and a £230m
piece is at 5.75%, tighter than earlier price indications from
the deal's global coordinators JP Morgan, Deutsche Bank and
"They're selling the dream and people are buying it," said
one banker. "It's a fundamentally interesting brand with a very
capable management team, so there's definitely upside. But
they've guided some pretty big numbers, and if they don't hit,
there's even more potential downside."
Aston Martin's bonds are attractive to investors starved of
higher yielding debt, particularly in Europe, where the strength
of demand for leveraged loans has dramatically dented Single B
rated bond supply.
But for the company it represents a big step down in
interest costs, given that it is refinancing high-coupon legacy
debt - a £304m 9.25% 2018 senior secured note and a privately
placed US$165m 10.25% 2018 PIK note at a holding company.
PIK toggle notes allow companies to make interest payments
with additional debt if they are short of cash, meaning the size
of the debt can balloon if not tackled quickly.
The carmaker has had a chequered history in the bond market,
with financial distress at its former principal owner, Kuwaiti
fund The Investment Dar (TID), sparking liquidity concerns.
The senior secured bonds it is refinancing see-sawed in the
secondary market in the months after they were issued in June
2011. Just six months later, in December 2011, they plummeted to
a cash price of 61, following weak results and downgrades by
both Moody’s and S&P.
Italian private equity firm InvestIndustrial purchased a
37.7% stake the following year, and new investment has allowed
Aston Martin to launch its first new sports car models in years
- delivering the new DB11 in the final quarter of 2016.
"The problem these guys used to have was that their
shareholders didn't have any capital to invest in the business
and new model introduction slowed to a crawl," said a second
banker, who was close to the deal. "That's over now."
InvestIndustrial also has further incentive to make sure its
new product line delivers, as its owns 75% of Aston Martin's
preference shares. These shares have warrants attached and
rights to accruing preferential dividends.
And Daimler owns a 4.92% non-voting stake in the company,
that accompanies the German carmaker's agreement to provide
electrical systems for Aston Martin's cars.
SIGNIFICANT ADJUSTMENTS TO EARNINGS
While the new bond deal saw a strong reception from
investors, some flagged its extensive use of adjusted numbers to
calculate its key financial metrics.
While Aston Martin posted £101m Ebitda last year, the
company has used the £115m Ebitda reported in the last 12 months
to February as the bond's base number. This is unusual, as
February is not the final month in a quarterly reporting period,
so the earnings for the first two months this year have not been
On top of this, Aston Martin then made pro forma adjustments
to take this figure up to £161m, by predicting the Ebitda it
expects to realise from car orders that are in production. On
this basis, the company will have 2.5x net debt to Ebitda, a
rather more flattering multiple than the 4x net leverage from
2016's £101m earnings number.
"The pro forma is very pro forma and could look a bit iffy,
but I do understand why they are doing it," said one investor.
"Full-year guidance was £160-£165m, so if you don't believe they
can do that, you shouldn't buy the deal anyway."
The banker close to the deal said that management also
guided investors that the company will become free cashflow
positive next year, as its capex spend "will peak this year".
The investor said that even at 2.5x, however, leverage was
still too high to be sustainable in the long term for "any car
"Ultimately, they have enough gearing in the business to not
need more on top," he said. "You can argue that luxury carmakers
command very high valuations, so it makes sense to have some
leverage. But Aston Martin is still on the wrong side of that."
(Reporting by Robert Smith; Editing by Alex Chambers and Philip