25th Sep 2019 12:16
(Alliance News) - S&P Global Ratings on Wednesday downgraded its issuer credit and issue ratings on Aston Martin Lagonda Global Holdings PLC to CCC+ from B-, with a negative outlook, reflecting higher-than-expected cash burn in 2019.
The ratings agency explained that the luxury sports car manufacturer's debt leverage rose beyond expectations due to the proposed issuance of USD150 million in new senior secured notes.
On Wednesday, Aston Martin said it has completed the pricing of USD150.0 million in 12% senior secured notes due mid-April 2022. The interest cost for the notes in the company's 2019 results is expected to be GBP5 million.
Also, Aston Martin has the option to issue up to USD100.0 million in additional notes. If these notes are issued unsecured, the interest will accrue at the rate of 15% per annum, the company explained.
The issuance of these additional noted is, however, subject to a condition of 1,400 orders of the new DBX sport utility vehicle being received within nine months of the secured notes issuance, Aston Martin said.
The cash raised will be used to improve liquidity as well as repaying short-term borrowings and related transaction fees, Aston Martin said.
S&P believes that Aston Martin remains materially free operating cash flow negative due to continued high capital expenditure to support new model development and roll-outs.
"In our base case, we forecast negative free operating cash flow of GBP160 million to GBP170 million after sizable capital expenditure spend in 2019," S&P said Wednesday.
Aston Martin said on Wednesday that 2020 capital expenditure is not expected to exceed GBP350 million.
"On the other hand, we note that this proposed issuance will bolster liquidity for the 12-month rating horizon and help Aston Martin to push ahead with its ambitious strategy. This additional liquidity should support the imminent launch and subsequent ramp up in production of its new luxury SUV, the DBX," S&P added.
The DBX launch remains on track for the global launch in December and production starting in the second-quarter 2020, S&P noted.
S&P said its negative outlook reflects ongoing pressure on Aston Martin's profitability, a high cash burn, and "very high" leverage in the face of heightened event risk associated with a potential no-deal Brexit and new tariffs on the vehicles it exports to the US.
Looking ahead, the ratings agency said it will downgrade Aston Martin's ratings further if it experiences weaker-than-forecast sales volumes or profitability in the reminder of 2019.
Meanwhile, S&P said it could revise the outlook to stable if the FTSE 250-listed firm fully delivers on its targets for 2019 in terms of revenue, margin, and operating cash flow.
Aston Martin shares were trading 5.8% lower on Wednesday in London at 541.60 pence each.
By Evelina Grecenko; [email protected]
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