Bulletin: Aston Martin’s legal dispute over Valkyrie supercars will slow recovery in 2021

LONDON (S&P Global Ratings) –S&P Global Ratings says today that

the impact of the dispute between Aston Martin and one of its

members of the dealer network, Nebula Project AG, will not trigger a rating action on

Aston Martin Holdings (UK) Ltd. (CCC / Stable / -). Aston Martin, alongside a

group of clients, initiated legal proceedings against the members of the board of directors of

Nebula related to the withholding of certain customer deposits on the Valkyrie

model.

Aston Martin estimates an impact of £ 15million on EBITDA and cash flow this

year. Although this will not affect the note, it will dampen the

profits and cash flows in 2021 and slow down its expected recovery in terms of S&P

EBITDA and Free Operating Cash Flow (FOCF) adjusted by Global Ratings for 2021.

We do not expect sales volumes to suffer and Aston Martin is committed to

deliver the ordered models to customers as scheduled.

Adjusted EBITDA is expected to approach breakeven by 2022, following a

difficult 2020. However, we see a small possibility that Adjusted EBITDA

remain negative, if there is a financial impact in 2022. We do not take into account

any change in the baseline scenario for next year at this point. Aston Martin

capitalizes its research and development (R&D) costs – we adjust EBITDA,

treat them as expenses.

At present, we assume that the withholding of deposits by car dealers

turn out to be a one-off event. Deposits for the group’s Special range will remain

directly with Aston Martin in the future, instead of going through a third

Party. If we see any indication that this is not the case, or if the impact on

EBITDA is higher than expected, Aston Martin credit indicators could be

negatively, which reduces the rating margin and delays its recovery.

Further declines in EBITDA generation in the medium term or any

liquidity could entail a downside risk.

The company is evolving in accordance with our expectations and we expect its

measures will improve in 2021, but pandemic risks persist. Wholesale

volumes in 2021 are expected to be around 6,000 vehicles, increasing to over

7,000 in 2022 in line with management expectations. It implies total income

nearly £ 1 billion in 2021 and over £ 1.1 billion in 2022 (including revenue

sales of parts and maintenance of vehicles, brand and motorsport

returned).

We still expect Aston Martin Lagonda (AML) to generate

EBITDA, taking into account capitalized R&D expenses. It would mean a debt to

EBITDA and FOCF to debt remaining deeply negative or insignificant, and the

the capital structure is proving unsustainable.

Our forecasts remain vulnerable to changing macroeconomic conditions,

especially if the pandemic restrictions affect Aston Martin

manufacturing facilities in the UK or dealers in AML’s main end markets.

This report does not constitute a rating action.

S&P Global Ratings is the world’s leading provider of independent credit ratings. Our ratings are essential to drive growth, ensure transparency and help educate market players so they can make decisions with confidence. We have over one million outstanding credit ratings on government, corporate, financial sector and structured finance entities and securities. We offer an independent view of the market based on a unique combination of broad perspectives and local knowledge. We provide our opinions and research on relative credit risk; market participants obtain independent information to help support the growth of transparent and liquid debt markets around the world.

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