Aston Martin creditors fume at lack of detail on debt deal

It was bad enough, in the eyes of Aston Martin Lagonda Global Holdings’s creditors, that the luxury carmaker struck a deal for new funds without them. Then came the response from Doug Lafferty, Aston Martin’s chief financial officer, as equity analysts asked him for any more information about the structure of the deal, which reshuffled assets and pushed bondholders back in the line for repayment. “All the information relating to the transaction we set out in our prior announcement,” he said on Wednesday. “So nothing further to disclose today.” Behind the scenes, what used to be a regular post-earnings meeting with credit investors, hosted by Goldman Sachs Group, wasn’t held for a second-straight quarter, people familiar with the matter said, declining to be identified discussing a private matter. Aston Martin also canceled scheduled calls between debtholders and management, they said. Longtime restructuring lawyers say that while borrowers may not legally be required to spell out all the specifics of a new deal, Aston Martin leaving key lenders in the dark is still rare. Aston Martin said on July 22 it had reached a 550 million British pounds ($739 million) deal with HPS Investment Partners, the private credit firm owned by BlackRock, to raise debt secured partly against unspecified assets in a new unit. It later clarified that it had set up two distinct subsidiaries as part of the deal. Executives were asked follow-up questions during its earnings call Wednesday on loan collateral, asset transfers, fees and the rationale and significance for shareholders. None were addressed head-on. Aston Martin, Goldman Sachs and HPS declined to comment. Creative debt maneuvers to help keep highly indebted companies afloat, often at the expense of at least some existing creditors, have become frequent in leveraged finance. Aston Martin shows how these moves can also lead to an information vacuum for lenders. That void has further infuriated debtholders who already opposed the deal, people familiar with the matter said. Major creditors include Arini Capital Management and Sculptor Capital Management. Reticence The deal resembles a move known as a drop-down, where new debt is raised against assets shifted out of the reach of existing creditors. Aston Martin hasn’t specified what assets, if any, it has moved that were previously within creditors’ reach. Such a maneuver is also known as a J. Crew, after the first high-profile transaction of this type. In 2016, the US clothing company stripped lenders of the security on valuable intellectual property to raise fresh cash. Investors and analysts have had to piece together what might be included. For instance, CreditSights analysts said the new loan would likely have charges over previously pledged collateral, including land leases, that was freed up because Aston Martin used the new facility to repay some existing debt. Some lawyers say borrowers aren’t typically required to spell out what changed in a deal of this sort, but would often do so anyway. “There is often no blanket legal obligation” in typical high-yield bond contracts to give granular details, said veteran restructuring lawyer Stephen Phillips. Disclosure requirements are also limited because European junk bonds are often unlisted or listed on lightly regulated venues, said Phillips, partner and founder of FreiLibertas Law. “That said, the information is clearly important for bondholders, and I would normally expect, for the sake of investor relations, that the outline aspects of the drop-down would be disclosed,” he said. Shareholders in London-listed Aston Martin might separately be able to argue that this is material information, Phillips added. Likewise, Sabrina Fox, a leveraged finance expert and the founder of Fox Legal Training, said it is relatively uncommon not to disclose details on assets. “I don’t really understand the reticence,” she said. “Bondholders are already worried they are pledging away their collateral.” Some junk bonds, including those of Aston Martin, have safeguards known as J-Crew blockers, Fox said. These can limit what assets are moved into unrestricted subsidiaries, or units that are beyond the reach of existing creditors. But, she added, Aston Martin’s use of two new units shows how drop-down-like maneuvers can also work through other kinds of subsidiaries. These are so-called non-guarantors, or units that fall under an issuer’s bond covenants but don’t guarantee to repay that debt. “The lesson here is that unrestricted subsidiaries are not the only entities to consider in drop-downs — non-guarantors are also important to assess,” she said. Attempted contact Bonds issued by the carmaker have fallen sharply in the past month, reflecting concerns about the company’s financial health and a debt revamp. The company’s $1.05 billion 10% bonds due 2029 stood at about 56 cents on the dollar on Friday, down from about 78.5 cents at the end of June. In total, the company has bonds with a face value of about $1.7 billion. Bondholders have banded together in recent weeks, under a committee made up of Arini, BlackRock and Sculptor. Creditors tried to dissuade the company from doing a deal with HPS and proposed supplying fresh funds. As part of its efforts, creditors reached out to Aston Martin weeks before the deal with HPS was unveiled offering to provide new funds themselves, and sent an alternative financing proposal days before the announcement, people familiar with the matter said. Aston Martin only replied after announcing the deal with HPS, and its response didn’t address any points made by creditors, these people added. A spokesperson for the creditor group declined to comment. On Friday, Fitch Ratings downgraded Aston Martin’s bonds by one notch to CCC. The ratings company said it believes the new debt “has significantly diluted the security position” of bondholders, while there was “limited visibility on the underlying collateral.” By Giulia Morpurgo, Irene García Pérez and Eliza Ronalds-Hannon

Aston Martin creditors fume at lack of detail on debt deal

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Aston Martin creditors fume at lack of detail on debt deal

How Bottega Veneta weaved China’s forever it bag