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Investors push Aston Martin to pay 10.5% yield on $1.1bn bond deal

Suban Abdulla
·3-min read
Since the lockdown, the company said 85% of its global dealerships have fully reopened as of 22 October. Photo: Piti A Sahakorn/LightRocket via Getty Images
Since the lockdown, the company said 85% of its global dealerships have fully reopened as of 22 October. Photo: Piti A Sahakorn/LightRocket via Getty Images

Aston Martin (AML.L) was forced to pay double-digit in annual interest rates to borrow $1.1bn (£850m), after investors pushed the firm to increase the yield on offer to 10.5% to get the deal over the line.

The British luxury carmaker announced the sterling and dollar bond sale as part of a wider financing package and set initial yield expectations at around 9%, earlier this week.

A £125m equity raise was also included in the deal.

The fundraising was to revive the loss-making company and bolster its balance sheet with more than £500m in cash after the coronavirus pandemic dampened consumer demand for cars.

It would also help redeem existing senior secured debt and repay a UK government-guaranteed loan.

Aston Martin was struggling to keep up with competitors even before the shock from COVID-19. The carmaker floated two years ago with shares in the company losing about two-thirds of their value in 2020.

So far, the firm has made £259m in total losses in the nine months to September 2020, compared to an £111m loss in the same time period last year.

Fixed income strategist at SaxoBank, Althea Spinozzi told Reuters that the British carmaker had “negative operating margins.”

“Plus, with Brexit hovering on top of its head, I can see why investors would not touch it unless adequately rewarded,” she added.

READ MORE: UK car production suffers worst September in 25 years

Since the lockdown, the company said 85% of its global dealerships have fully reopened as of 22 October.

On the look ahead, the carmaker aims to sell 10,000 cars a year by 2025, an increase of less than 6,000 vehicles sold last year. It hopes its first sports utility model, the DBX will boost sales.

Earlier this week, it revealed that Daimler's Mercedes-Benz (DAI.DE) division will increase its stake in Aston Martin to up to 20% by 2023, making it one of its largest shareholders.

The deal will see an existing supply agreement between the two firms — which has been in place since 2013 — expanded to give Aston Martin access to Mercedes’ hybrid and electric drive technology.

While luxury carmakers have been hit hard by the coronavirus crisis as demand tumbled and revenues fell, Audi (NSU.DE) has said that it is “cautiously optimistic” about the rest of the year after posting strong third quarter results amid COVID-19.

The Volkswagen-owned (VOW3.DE) firm revealed that key performance indicators were back at, or above, the prior-year level thanks to market recovery and good operating performance. Both deliveries and revenue were higher in the third quarter than the previous year.

It expects the trend to continue into Q4 unless there are further restrictions due to the COVID-19.

Watch: Why job losses have risen despite the economy reopening