Ardagh Group’s riskiest bonds slid to as low of a little over a fifth of their par value this week after the glass and metal containers group enlisted US investment giant Apollo to effectively buy up a chunk of the debt at a deep discount in the market on its behalf.
Some €880 million of bonds issued by a holding company at the top of the group’s complex corporate tree – called ARD Finance – fell to a low of 21 cents on the euro this week from 26.4 last Friday. A further $895 million (€840 million) of similar notes dropped to as low as 22.4 cents.
The declines follow heavily indebted Ardagh’s announcement on Monday that it had entered a deal for Apollo, a specialist in debt solutions, to go into the market to buy out some of the group’s riskiest bonds, which are due to be repaid in 2027, at a likely deep discount to their face value.
Apollo is essentially lending to Ardagh under the deal. It will see the investment house swap Ardagh 2027 notes it buys 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 (€234.6 million).
The 2027 bonds have fallen in value from about 80 cent on the dollar last autumn, reflecting market concerns about the prospects of holders of these notes being repaid in full as the group’s debt burden increased as earnings dropped. These bonds are called toggle notes, allowing the company to defer interest payments if needed. Ardagh said on Monday it will stop paying interest in cash on the notes after June.
Buying back a chunk of the riskiest bonds at a discount will have the effect of chipping away at the wider group’s debt, which stood at almost $12 billion (€11.2 billion) at the end of last year. That equated to 8.7 times earnings before interest, tax, depreciation and amortisation (ebitda) in December, up from 8.2 times a year earlier.
Separately, Apollo has agreed to provide a further $790 million (€742 million) by way of a senior secured term loan to Ardagh to allow the packaging group to redeem at face value of some $700 million (€657 million) of senior notes that are due to be repaid in 12 months’ time.
Ardagh’s more senior bonds are trading at much higher levels. Bonds that mature in 2026 were changing at about 85 cent this week.
[ Ardagh enlists Apollo to refinance $700m debt falling due next year ]
Ardagh was built through a series of acquisitions over the past 25 years by Irishman Paul Coulson, who owns 36 per cent of the business.
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”.
