Some of Ardagh Group’s bonds have crept higher in recent days amid hopes the packaging group will be able to slice the top off its $12.5 billion (€11.2 billion) debt pile with an imminent sale of its 42 per cent-owned food and speciality metal cans joint venture.
Ardagh spun out its food and speciality metal packaging business in 2019 into a joint venture with US-based rival Exal Corporation, which is owned by the Ontario Teachers’ Pension Plan Board (OTPPB), to form Trivium Packaging.
Californian buyout firm Platinum Equity is in talks to buy Trivium for more than $3.5 billion, Bloomberg reported late last week, adding that a deal could be reached within weeks. It emerged in January that the joint venture partners were exploring a sale of Trivium, having previously looked at a disposal two years ago.
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The value of $1.22 billion of Ardagh bonds that fall due in 2026 have risen from 86 cents on the dollar to over 90 cents since the report. Elsewhere, bonds of its New York-listed beverage cans unit, Ardagh Metal Packaging (AMP), that mature in 2029 have edged 1.5 cent higher to 88.5 cent.
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Ardagh, which has been built by Dubliner Paul Coulson into one of the world’s largest packaging groups over the past 25 years through a series of deals, would stand to receive more than $290 million for its 42 per cent stake in Trivium in the event the joint venture is sold for an enterprise value, including debt, of $3.5 billion. Trivium’s own net debt stood at $2.8 billion at the end of March, according to its most recent quarterly report.
Ardagh’s riskiest bonds have gleaned little support from reports of an imminent Trivium deal, as they would stand at the back of the queue in the event of a debt restructuring. Some €795 million of bonds issued by a holding company at the top of the group’s complex corporate structure – called ARD Finance – and due for repayment in 2027 are currently trading at about 21 cent, where they have languished for the past three months.
A spokesman for Ardagh, in which Mr Coulson holds an effective 36 per cent stake, declined to comment on the Trivium sale.
Group chairman Herman Troskie told analysts in April and July that the group was looking at “all options” to reduce its debt. The burden of the borrowings has mounted since interest rates shot up globally and the company’s earnings began to slump in the second half of 2023 amid subdued consumer confidence and as drinks companies cut back orders to run down packaging stockpiles.
While Ardagh reported in July that earnings had picked up in the group’s 75 per cent-owned AMP, the outlook for its legacy glass business continues to deteriorate.
The combined outlook means the group is now forecasting, at best, a 3.1 per cent increase in earnings before interest, tax, depreciation (ebitda) this year to $1.34 billion. That equates to a net debt ratio of almost nine times at its estimated current net debt – a level that is viewed by analysts, including Fitch’s Marina Bordakova, to be unsustainable.
[ Ardagh’s riskiest bonds fall below 20c on euro ahead of resultsOpens in new window ]
Research firm CreditSights concluded following the most recent results that a debt-restructuring proposal would be likely from Ardagh, even if the “severity of it will be dictated by how the market plays out over the next few quarters”. Ardagh will publish third-quarter earnings on October 24th.
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