(The following statement was released by the ratings agency)
Aug 19 -
— U.K.-based automotive manufacturer Aston Martin has completed the issue of GBP304 million senior secured notes due in July 2018.
— We are assigning our ‘BB-‘ long-term corporate credit rating to the company.
— We are also assigning our ‘BB-‘ issue rating and ‘3’ recovery rating to the GBP304 million notes issued by Aston Martin Capital Ltd .
— The stable outlook reflects our view that Aston Martin’s operating earnings and cash flows should continue to improve from the trough in 2009, supported by solid demand for luxury sports vehicles and Aston Martin’s new model pipeline.
Standard & Poor’s Ratings Services said today it assigned its ‘BB-‘ long-term corporate credit rating to U.K.-based luxury sports car manufacturer Aston Martin Holdings (UK) Ltd. (AM). At the same time, we assigned our ‘BB-‘ issue rating to the GBP304 million senior secured notes issued by Aston Martin Capital Ltd. with a recovery rating of ‘3’, indicating our expectation of meaningful recovery (50%-70%) in the event of a payment default. The outlook is stable.
The ratings on AM primarily reflect our assessment of its financial risk profile as “aggressive” and business risk profile as “fair”, according to our criteria.
“We consider AM’s business risk profile to be constrained by marked cyclical swings in its end-markets, its niche position in the market for high-luxury sports cars, limited product diversity, and highly variable operating margins,” said Standard & Poor’s credit analyst Werner Staeblein. “Nevertheless, the company’s strong brand reputation in luxury sports cars affords it a certain pricing power, while its good production flexibility, product offering, and new model pipeline also support its business risk profile, in our view.”
AM derives about 90%-95% of group revenues from vehicle sales, and the remainder from services and spare parts.
The crisis in the automotive market in 2009 affected sales in both the mass-market and luxury car segments. AM reported a group sales decline of 35% and a drop in unit sales of 50% in 2009, but managed to report a positive operating result, with an underlying EBIT margin of 6%. We view this as an indication that AM’s operating leverage is lower than that of the auto industry in general. Following a rebound in demand for luxury cars, AM reported a rise in revenues of 36% in 2010, with an underlying EBIT margin of 6%. AM sold about 4,200 vehicles in 2010, notably in the U.K., the U.S., and the rest of Europe.
As of year-end 2010, AM’s fully adjusted debt to EBITDA was 5.2x, as adjusted by Standard & Poor’s, while funds from operations (FFO) to debt stood at 17%.
“The stable outlook reflects our opinion that AM will likely maintain credit ratios that we consider commensurate with its financial risk profile, which we view as “aggressive”, such as adjusted FFO to debt of about 15% over the medium term,” said Mr. Staeblein.
Our base-case scenario assumes that AM’s adjusted FFO to debt will be about in line with this level in 2011 and that it could achieve a minor financial buffer to this level in 2012. For a company operating in a cyclical environment such as AM, we see the need to maintain a buffer to be able to withstand the risk of large swings in demand and operating cash flow, as has been the case in the recent past.
— Criteria Methodology: Business Risk/Financial Risk Matrix Expanded, May 27, 2009
— Key Credit Factors: Business and Financial Risks In The Automaker Industry, Sept. 25, 2008.
— Corporate Ratings Criteria 2008, April 15, 2008