As Ireland looks to take on England in two weeks at the start of its campaign for a third straight Six Nations rugby title, former captain Johnny Sexton has more pressing matters on his mind.
Ardagh Group, where Sexton became chief of staff for more than 20,000 employees on hanging up his boots after the 2023 World Cup, is preparing to tog out against another formidable team: a bunch of bondholders worried about getting their money back.
The international glass bottle and drink cans giant was pieced together by Irishman Paul Coulson (72) – a big fan of Leinster Rugby – over the past 25 years through a series of acquisitions, fuelled by borrowings from junk bond markets targeting companies with low credit ratings.
While Ardagh operates in the staid business of making bottles and cans for companies from Coca-Cola to Heineken, the relative predictability of its cash flows over the years allowed Coulson to court these racier parts of the debt markets.
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The Cooler, as he is known, would become Ireland’s biggest, and most nimble player in the market for low-rated bonds – raising billions to fund or refinance deals and make special payments to shareholders. Coulson is the largest investor in the group, with a 36 per cent stake.
Tapping the market for the riskiest of junk debt – so-called payment-in-kind (PIK) bonds, where interest can be rolled up and added to the principal – has required deft timing, even in the recent decade of ultra-low interest rates.
A triple whammy of a surge in borrowing costs, a questionable large investment programme embarked on during the pandemic to build extra manufacturing capacity amid a spike in home drinking and a fad around sparkling canned alcoholic drinks, and a subsequent downturn in the glass bottle market, in particular, has left the group saddled with a $12.5 billion (€12.1 billion) debt pile that it can no longer carry.
Ardagh and its bondholders have been dancing the haka around each other for some time.
Ardagh hired US law firm Kirkland & Ellis and investment bank Houlihan Lokey early last year to assist in finding ways to lower debt. On the other side, certain groups of creditors reportedly hired financial firms Gibson Dunn & Crutcher and Milbank.
Ardagh subsequently brought US alternative asset manager Apollo into the henhouse – agreeing to borrow as much as $1.35 billion from the firm, affecting the potential for recovery of some existing debtholders. Much of those new funds were used to redeem $700 million of bonds that were due to mature this year.
The net debt level of the company at the top of Ardagh’s complicated corporate tree – ARD Holdings – stood at 9.5 times earnings before interest, tax, depreciation and amortisation (Ebitda) in September. Debt ratings agencies Moody’s and Fitch say this is unsustainable.
Ardagh chairman Herman Troskie said repeatedly in 2024 that the group was looking at options to reduce its debt. However, assessing an appropriate level of borrowings has been challenging as the earnings outlook for Ardagh’s glass unit deteriorated, even as that of the group’s New York-listed beverage cans business – Ardagh Metal Packaging (AMP) – improved.
Trading in Ardagh’s various bonds tell a story.
The $1.79 billion of those PIK notes – which rank lower than all other bonds in terms of recovery in the event of a liquidation – are currently trading at between nine and 14 cents on the dollar, according to Bloomberg data. Holders of these bonds are just waiting for a stretcher to take them off the pitch.
Ardagh pretty much left the company behind the PIKs – a funding vehicle called ARD Finance that lies below between the parent group and the operating company – to its own devices last week when Coulson, Troskie, and Ardagh’s chief financial officer quit the board. They have been replaced by two new Luxembourg-based directors.
Helen Rodriguez, a senior debt analyst with CreditSights, says this removes any potential conflict of interest as Coulson focuses on the real impending scrum between the manufacturer and creditors.
A rejig of the board of Ardagh, also announced last week, saw two corporate insolvency and restructuring experts – including Paul Copley, a former partner in PwC’s UK insolvency and recovery practice who went on to lead the wind-up of a failed Iceland bank – become directors.
This “suggests a resolution may be nearing for the company’s elevated debt pile”, according to Gabe Hajde, an analyst at Wells Fargo in the US.
While a bunch of senior Ardagh bonds that mature next year (and which are secured against Ardagh assets) are trading at close to 90 per cent of their nominal value, $2.33 billion of senior unsecured bonds due in 2027 are changing hands at 49-58 cent on the dollar.
Will investors in these be content to just take their losses by exchanging their bonds for notes with a lesser value? Or will they demand an equity stake in the business? Hajde reckons a debt-for-equity swap is likely.
Meanwhile, Ardagh’s 76 per cent-owned and US-listed AMP unit’s bonds are trading between 85 and 99 cent on the dollar as they remain ringfenced from where the real action will be.
Coulson’s chairman last year ruled out Ardagh selling AMP shares to raise money to lower the group’s debt, as they are also trading at low levels. Sticking to this may come at the cost of the businessman ceding a large stake to bondholders in the wider group.
The question now is how much will the Cooler be left with when the final whistle is blown?
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