Businessman Paul Coulson’s Ardagh Group has secured at least $1.04 billion (€980 million) of loans from US alternative asset manager Apollo to refinance bonds that are due for repayment next year and mop up some of its riskiest debt at a discount to its original value.
The new loans are understood to carry an interest rate below 9 per cent. That is well above the rates on the bonds that are being repaid and reflects how global borrowing costs have spiralled in recent years and the low credit rating that Ardagh carries with leading credit ratings agencies. The new loans are set to mature in 2029.
The new facilities are mainly made up of a $790 million senior secured term loan from Apollo, which will be used to redeem at face value $700 million of senior notes that are due to be repaid in 12 months’ time and which carry a 5.25 per cent interest rate, or coupon.
Ardagh, one of the world’s largest glass and metal container makers, has also entered a deal that would see Apollo, a specialist in debt solutions, go into the market to buy out some of the group’s riskiest bonds at a likely deep discount to their face value. The $1.8 billion of junior debt notes, due in 2027, were sold by a holding company at the top of Ardagh’s corporate tree and were trading at between 27 and 31 US cents on the dollar late last week.
Under this element of the deal, Apollo will swap Ardagh 2027 notes acquired in the market for new loans between both companies. Apollo will receive a premium above the price it pays for the notes in the market. The facility will be capped at $250 million.
Apollo has also agreed to provide an undisclosed amount in additional new term loans “to fund a debt service account” at a unit of Ardagh. All the new loans are secured against a holding company that owns the packaging group’s 76 per cent stake in New York-listed drink cans group Ardagh Metal Packaging.
Ardagh’s decision to enter a deal with a debt specialist is unusual for the group, which has been one of the most active Irish-run players in the US junk-bond market in the past two decades.
However, the move buys the group time to deal with its wider $12 billion (€11.2 billion) debt pile.
Standard & Poor’s downgraded Ardagh’s debt rating this month to B-, which is six rungs deep into “junk” status and 15 levels below its top-notch AAA rating, saying its “negative outlook reflects the risk the capital structure could become unsustainable if the group continues to burn cash, struggles to refinance its very high debt stock, or considers restructuring options such as a distressed debt exchange”.
Ardagh said on Monday that it “continues to evaluate options with its capital structure and, together with its affiliates, may seek to further reduce its debt through discounted open market purchases, tender offers, exchange offers, privately negotiated transactions or otherwise”.
Ardagh, which traces its roots to the long-since closed glass bottle factory in Dublin’s Ringsend, has been turned by Mr Coulson into one of the world’s largest glass and metal container makers over the past 25 years through a series of debt-fuelled acquisitions. Mr Coulson stood down as executive chairman late last year but remains on the board and holds an effective 36 per cent stake in the group, which is domiciled in Luxembourg.
The group confirmed that it is being advised by US investment bank Houlihan Lokey and law firm Kirkland & Ellis regarding its debt pile.
Ardagh’s adjusted earnings before interest, tax, depreciation and amortisation (EBITDA) slid by 25 per cent on the year to $243 million in the fourth quarter last year amid subdued consumer confidence and as drinks and food companies cut back orders to run down packaging stockpiles. The company had invested heavily in recent years, mainly to expand its can production capacity.
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