Aston Martin will raise £210mn through the placement of new shares to pay off a portion of high-interest debt that has crippled the business’s finances for the last three years.
In 2020, Astontook a $100mn tranche that included a 15% coupon, as well as a “payment-in-kind” condition. This is a standard condition when investors are concerned about the business’s ability to pay the full amount.
This move provided much-needed breathing space for the luxury car maker during a period of low sales and a collapse in its share price after its 2018 IPO. However, it also imposed heavy payments each quarter on the company that sabotaged its profitability.
Aston announced last week a £142mn loss before tax for six months. This included £56mn in cash interest payments. At the end of the month, the company’s net debt was £846mn. The high-interest tranche amounted to £186mn.
Aston said on Monday that the money raised by the sale of shares will be used to pay off this portion “by early Novembre 2023”. This will “enable the company to operate more efficiently and generate free cash flow by reducing interest costs”.
Aston can also benefit from a surge in the share price of its stock, which has quadrupled in value since October last year.
Aston’s biggest investors, including China’s Geely and Saudi Arabia’s sovereign fund PIF as well as Mercedes-Benz and the Yew Tree Consortium led by Lawrence Stroll as owner and chairman, have offered to purchase £115mn worth of shares. Yew Tree underwrote a further £69mn in the share offering.
Aston has raised money in the past to try to get back to profitability. PIF was raised by the company last year via a right issue to pay off a portion of its high interest debt.
If the latest deal is paid in full, it should clear the remaining debt. However, the business has a large amount of debt that pays interest at 10.5%.
Stroll, who complained once about “the Goddamned Debt” that was holding the business back, said the offering of shares would “accelerate our pathway to deleverage and become sustainably cash flow positive”.
In the next few years, the company expects to return to profitability through a new line of high-priced special models and sports cars. It also anticipates lower interest rates. By 2024, the company aims to achieve free cash flow and balance debt with earnings.