Mercedes Benz to up stake in struggling Aston Martin

Mercedes-Benz will increase its stake in struggling luxury-car maker Aston Martin Lagonda Global Holdings as part of a series of moves by the British company to shore up its finances.

Mercedes will boost its holding to as much as 20 per cent by giving Aston Martin access to hybrid and electric powertrains and other components, the companies said. Aston Martin will separately raise a total of about £1.3 billion (€1.43 billion) through new bond and stock offerings, most of which will be used to refinance existing debt.

Aston Martin has struggled in the two years since it went public with bloated inventory and disappointing sales of its core sports cars. After Canadian billionaire Lawrence Stroll bailed out the automaker early this year, the company poached the head of Mercedes's high-performance brand AMG to be its new chief executive.

The reboot at Aston Martin comes as the fortunes of rival Jaguar Land Rover Automotive are improving. Sales are already back at pre-Covid levels in some markets and the British luxury carmaker posted its first profit in three quarters on Tuesday.

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While its Indian owner Tata Motors reported a wider quarterly loss of 3.14 billion rupees (€36.7 million) on Tuesday, Jaguar eked out a profit of £65 million pounds (€71.7 million) before tax for the three months to end-September.

It said it expects cash flow to be positive in the second half.

Balance sheet

By expanding a tie-up that started in 2013, Aston Martin will spare its already stretched balance sheet from spending on a costly shift away from internal combustion engines. Mercedes, the world’s top seller of luxury cars, won’t put any cash into its partner.

Ola Kallenius, chief executive of Mercedes parent Daimler, told reporters earlier this month the company has no intention of acquiring Aston Martin but said their technology partnership will remain in place. He has been cutting costs to free up funds for hybrids and electric vehicles, including for the AMG division. Supplying electric-car technology to Aston Martin will boost economies of scale beyond Mercedes's own product range.

Aston Martin’s £285 million of loan notes due April 2022 were up 10 pence to 100.1 pence after the company announced the refinancing plans. That’s the biggest jump since the notes were issued in 2017, and the highest price in two years, according to data compiled by Bloomberg.

The company has a combined $1.3 billion of debt in financial instruments due in 2022. With proceeds from a new £840 million equivalent of senior secured notes, the company will push its maturity wall to 2025.

The initial pricing being discussed for the new notes is said to be in the 8 per cent to 9 per cent range, according to a person familiar with the matter. That’s well above the 6.5 per cent coupon paid by its existing $400 million and $190 million notes, but below the hefty 12 per cent interest it had to offer to investors the last time it tapped debt markets more than a year ago.

Aston Martin also arranged £259 million equivalent of new second-lien notes due in 2026 with a 13.5 per cent coupon, and a refinanced £87 million revolving credit facility due in 2025.

After the fundraising, Aston Martin will have more than £500 million of cash, the company said in a stock-exchange filing. That amount is sufficient for its medium- and long-term requirements, chief financial officer Ken Gregor said on a conference call.

- Bloomberg