Red flag warning as Aston Martin raises $150m from bond issue
James Bond favourite Aston Martin has successfully raised $150m (£120m) from a bond issue as it seeks to improve liquidity in an uncertain trading environment.
Read more: Short sellers target Aston Martin’s debt pile
The luxury carmaker’s $150m raise involved 12 per cent notes due in 2022.
But shares sank as investors quailed at the generous interest rates Aston Martin was offering on the loans.
Shares fell 5.5 per cent as one analyst called the borrowing rate a “red flag”.
Russ Mould, investment director at AJ Bell, said: “These rates are very high and are a major red flag that investors consider the car company to be a high risk entity.
“Metro Bank couldn’t get enough support for its bonds earlier this week at 7.5 per cent despite investors around the world scrambling for new sources of income in a low interest rate environment.
“So Aston Martin pricing its debt at up to twice this level would suggest it really needs the money and has had to bow to investors’ demands.”
With part of Aston Martin’s debt structured as a payment-in-kind, where interest accumulates into a larger payment at the end, Mould warned that an earnings hit could leave the carmaker struggling to pay the debt.
“The car manufacturer is known for its high end prices and that situation now also applies to its debt,” he added.
Aston Martin can also raise another $100m under the same terms, or as unsecured notes at an interest rate of 15 per cent, if it meets order targets.
Chief financial officer Mark Wilson warned that the economic backdrop will remain challenging.
“What we have announced today is a cost and time-effective structure that immediately strengthens our liquidity in the short term and the option to draw further funding as we successfully execute the plan,” he added.
The bond issue follows hedge funds taking record short positions in Aston Martin’s debt and equity after its stock has continued to sink since last October’s initial public offering (IPO).
While Aston Martin’s share price has fallen almost 75 per cent since its stock market debut, hedge funds have targeted the carmaker’s debt for shorting.
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“Despite continuing pressure on sales volumes, we expect to meet current analyst consensus for key financial metrics for FY 2019,” Aston Martin said. “Our capital expenditure for the full year 2020 is not expected to exceed £350m.”