A new effort by Aston Martin to bolster its financial position has led to a fierce fight with some of the company’s current lenders. In July, the luxury auto-maker managed to raise as much as 550 million pounds in new money from a private credit fund owned by investment giant BlackRock, HPS Investment Partners. Yet, creditors for the automaker, who are owed over 1.
3 billion pounds, believe the deal has served to curtail the assets’ value and breach the covenants put in place by old debt. The deal involved Aston Martin borrowing 450 million and also having the choice of an extra 100 million when the new facility came on stream. The facility is secured over assets put into a new subsidiary including the ‘extensive collection’ of trademarks upon which Aston Martin is based, and the logo and historic designs such as the DB6.
Creditors argue that this practice further withdrew collateral on which their holdings were based, causing the company’s bonds to fall even further and pushing its credit ratings even further into the junk bond status. Two of the hedge funds, Arini Capital Management and Tresidor Investment Management, have pushed back by applying for discovery last month, in a New York court, requiring HPS, Authentic Brands Group and Aston Martin’s advisersMoelis and Lazardto produce documents and give depositions. That material wouldthen be used as evidence in a ”possible claim” in England which could seek to reverse the deal or prevent further asset transfers.
Another layer of complication is a connected deal between Authentic Brands, an American company in which HPS has an ownership stake, and the additional funding. Agreed for some of the new money is that a large part of it can only be used if Aston Martin grants Authentic Brands a majority ownership of certain non-automotive intellectual property assets.
The existing lenders see this as yet another hollowing-out of their collateral while rewarding the new lenders. Aston Martin has issued a statement in which it has justified the financing as a ‘creditable transaction, and per [its] obligations’. It has been consistently under pressure, with total debt standing at over 1.
5 billion pounds, consecutive quarterly operating losses and a share price plummeting from approximately 20 pounds at the time of its issue on the London Stock Exchange in 2018 to close to 30 pence today. Management has also noted that the HPS package was ‘important to the company’s overall financial stability as capital raising has become increasingly challenging during the global Covid-19 pandemic’.
But, the bondholders argue that they were not averted the chance of bestowing new credit and the design favors new investment over long-dated creditors. They have since formally advised the board and insisting for clarity on precisely which assets have changed hands. The controversy illustrates the increasing spark that may occur when cash-strapped companies seek private credit for last-minute funding. HPS, acquired by BlackRock earlier this year, is now a major participant in the space, providing canny fast lean and often heavily collateralised lending. For Aston Martin, the legal fight is an extra obstacle as it aims to smooth out its business.