The Ardagh Group, a company specialising in glass and metal packaging, has noted a significant drop in the value of its riskiest bonds, descending to slightly more than a fifth of their original worth this week. This happened following Ardagh’s move to involve American investment colossus, Apollo, in acquiring a substantial portion of the group’s debt at a sizable markdown in the market for them.
The group’s complex financial structure saw the holding company at its peak, ARD Finance, lose value on some €880 million in bonds. They fell to 21 cents on the euro this week from 26.4 on the previous Friday. Another group of comparable bonds, worth $895 million (€840 million), depreciated to slightly under 22.4 cents.
Such downturns are a consequence of Ardagh, a company with hefty debts, publicising on Monday its agreement with Apollo. The deal is for Apollo, a company specialising in debt management, to acquire a part of the riskiest bonds of Ardagh in the market, due for repayment in 2027 and likely to come with a hefty discount from their original price.
In essence, Apollo assumes the role of Ardagh’s lender in this arrangement. The plan is for Apollo to exchange any 2027 Ardagh notes they purchase for new loans drawn up between the two companies. Apollo will earn a premium over the price they paid for the notes. However, there’s a ceiling to this scheme, capped off at $250 million (€234.6 million).
The value of these 2027 bonds dove from around 80 cents on the dollar last autumn, reflecting market anxieties about the likelihood of repaying the bondholders fully, especially given Ardagh’s rising debt against falling earnings. These bonds, also known as toggle notes, allow Ardagh to postpone any interest payments if necessary. It was announced on Monday that, post June, the company will cease making cash payments of interest on these notes.
There’s a beneficial side to acquiring a portion of these highly risky bonds at a markdown. It can help diminish the overarching debt of the group, the latter of which was close to hitting the $12 billion (€11.2 billion) mark at the end of the preceding year. This is equivalent to an 8.7 multiple of Ardagh’s earnings before interest, tax, depreciation and amortisation (EBITDA) until December, rising from a multiple of 8.2 the previous year.
Separately, Apollo agreed to lend Ardagh an added $790 million (€742 million) by method of a senior secured term loan. This additional aid will enable Ardagh to redeem at face value approximately $700 million (€657 million) worth of senior notes that are due for repayment in a year’s time.
The senior bonds of Ardagh are currently trading at significantly raised prices. This week, bonds due for maturity in 2026 traded at around 85 pence. Ardagh, established over the last 25 years through a succession of acquisitions by Irish businessman Paul Coulson, who holds a 36% stake in the company, is seeking to refinance a $700m debt owed next year with the help of Apollo.
Earlier this month, Standard & Poor’s reduced Ardagh’s debt rating to B-, placing it six steps deep in “junk” status and 15 steps beneath the prime AAA rating. The agency voiced concerns about a negative outlook that indicates a risk of an unmanageable capital structure in the event of the company continuing to deplete cash reserves, finding refinancing its high level of debt challenging, or looking at restructuring strategies such as distressed debt exchanges.
On Monday, Ardagh announced that it is continuously assessing possibilities related to its capital structure, and, in collaboration with its associated entities, might aim to decrease its debt further via discounted open market acquisitions, tender offers, exchange offers, private deals, or other methods.