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By Paul Sandle
LONDON (Reuters) - Luxury carmaker Aston Martin <AML.L> will see its borrowing costs jump after it raised $150 million in debt at 12% interest to bolster its balance sheet for its DBX sports utility vehicle launch next year, with the option for another $100 million.
The British carmaker, known as James Bond's favorite marque, has been hit by falling demand in Europe, the Middle East and Africa. It slumped to a first-half loss in July.
Chief Executive Andy Palmer said concerns around Brexit and U.S.-China trade relations were skewing the outlook to the downside, so it was prudent to address investor concerns about its balance sheet.
"Taking this debt on - short-term debt - is we think the correct tool to completely remove that thesis that we don't have sufficient liquidity," he told Reuters on Wednesday.
"In every substantial and material way, this ensures that we can get through to DBX in spite of what all of those global uncertainties might throw at us."
The main tranche comprises notes with an interest rate of 12% due in 2022, while the additional notes could be issued under the same terms if permitted, or could be issued as unsecured notes with an interest rate of 15%, Aston Martin said.
Shares in the company, which have had a precipitous fall since they listed in London in October 2018 at 19 pounds, were trading down 5% at 545 pence in early deals.
Broker AJ Bell said Aston Martin was known for its high end prices and that situation now also applied to its debt.
"These rates are very high and are a major red flag that investors consider the car company to be a high risk entity," it said.
Ratings agency S&P downgraded its issuer credit and issue ratings to "CCC+" from "B-", with a negative outlook, saying it believed Aston Martin had reached the ceiling in terms of the amount of term debt and cash interest burden it could sustainably service.
KICKING THE CAN
Analysts at Jefferies, who said they had expected the company to raise 200 million pounds at a rate of 10%, said it was an "expensive short-term de-risking".
"Aston Martin Lagonda's debt raise feels a bit like kicking the can down the road but should de-stress liquidity," they said. "It also provides needed breathing room to execute the DBX launch, although a high order rate should reduce the need to raise more debt."
Aston Martin said the DBX, its first sports utility vehicle, was on track for first deliveries at the end of the second quarter of next year.