Aston Martin creditors are threatening legal action over the luxury car maker’s £550 million financing deal with BlackRock-owned private credit firm HPS Investment Partners.
The Financial Times reports that bondholders owed around £1.3 billion have sent a letter before action to Aston Martin’s board, warning that they could seek to unwind the deal and block the sale of intellectual property assets.
Creditors reportedly believe the financing arrangement may have moved valuable assets beyond the reach of existing lenders and reduced the collateral supporting Aston Martin’s debt.
£550m financing deal
Aston Martin announced the funding package in July which includes a £450m term loan and an additional £100m facility that could potentially be drawn in the future.
Aston Martin said the financing was secured against assets held in a newly incorporated subsidiary, together with other assets owned by the group.
However, existing bondholders claim Aston Martin has not provided enough detail about which assets were transferred or how the new financing ranks against the company’s existing debts.
Creditors fear brand value loss
Nick Stockley, partner at law firm Mayo Wynne Baxter, told AM that if Aston Martin entered a formal insolvency process, the value of its name would be central to attracting buyers and generating funds to repay creditors.
“The proceeds from the sale of the brand name will be used to pay the debts to the current creditors. If the Aston Martin name has already been sold, the creditors will stand to lose out completely.”
He compared the creditors’ opposition to a freezing injunction, where a creditor asks a court to prevent a debtor from disposing of assets.
Stockley said bondholders had a credible case for opposing the transfer because Aston Martin was facing significant financial pressure.
However, he warned that stopping the transaction could undermine the company’s ability to secure the funding it needs. “If Aston Martin cannot get further funding, the creditors will lose out,” he noted. “Therefore, opposing the sale of the brand name could be completely counter-productive.”
Branding rights sale questioned
The dispute has intensified following reports that access to the additional £100m is conditional on Aston Martin transferring 50.1% of its non-automotive intellectual property to Authentic Brands Group which is a US brand development and licensing company in which HPS is an investor.
Creditors also argue that the structure may breach existing lending terms and claim they were not offered the opportunity to provide Aston Martin with alternative funding.
Legal action to unwind transaction
Any legal claim could seek to reverse parts of the HPS financing deal and prevent Aston Martin from completing the proposed intellectual property transaction.
Stockley said Aston Martin would need to persuade creditors that reversing the new lending would cause more damage than allowing the deal to proceed.
While Aston Martin and HPS have declined to comment on the creditors’ threatened legal action, the car maker’s chief financial officer Doug Lafferty defended the deal during the company’s latest earnings call, describing it as “important for the company as a whole”.