Paul Coulson’s Ardagh Group is on track to pay the price for being a “poster child” for prioritising financial engineering over-investing in its assets, as a debt restructuring looms that will put control of the packaging giant on the table, according to analysts at CreditSights.
The company’s glass bottles business “appears to be losing its competitive edge” as it has fared worse than rivals during a recent downturn in demand, said analysts Helen Rodriguez and Jack Hird in a report published on Monday.
“Ardagh’s bondholders have taken the hit for a management who have prioritised corporate finance over the glass business,” they said.
“Nowhere is this more so than in the huge transfer of wealth” given to Apollo last year when it borrowed from the US investments giant to refinance part of its debt, they noted. That deal pushed various existing bondholders down the pecking order in terms of seniority – before Ardagh started debt restructuring talks with bond investors.
“How different things could have been if Ardagh had engaged with the bondholders [before the Apollo deal]. Presumably, an unwillingness to hand over control inhibited such discussions, but that battle is coming anyway,” said CreditSights.
A spokesman for Ardagh Group said it was engaged in “constructive discussions with noteholders aimed at establishing a more sustainable capital structure for the business”. He added that the group has invested more than $3.5 billion (€3.34 billion) since 2021, including $1.7 billion in its glass business, “which despite continuing market and macro uncertainty, expects to outperform the market on volumes this year”.
Ardagh Group, which Mr Coulson has turned into one of the world’s largest packaging companies through a series of debt-fuelled acquisitions over the past 25 years, warned in its annual report last week that there could be “substantial doubt” over its ability to continue as a going concern amid the debt restructuring talks.
Mr Coulson effectively owns 36 per cent of the group.
Ardagh Group had net borrowings of $10.5 billion (€10 billion) at the end of December, equating to 7.6 times its earnings before interest, tax, depreciation and amortisation for 2024. However, the ultimate parent company of the group, ARD Holdings, has an estimated $12.5 billion of net debt.
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ARD Finance’s $1.79 billion of payment-in-kind notes – which rank lower than all other bonds in terms of recovery in the event of liquidation – are trading at between 5.4 cents and 6.7 cents on the euro, according to Bloomberg data. This reflects a widespread belief in the market that holders of these notes will lose almost all of what they are owed.
While senior Ardagh bonds that mature next year – and which are secured against Ardagh assets – are trading at more than 90 per cent of their nominal value, $2.33 billion of senior unsecured bonds due in 2027 are changing hands at about 50 cents on the dollar.
The group has more than $1.5 billion of cash and undrawn credit facilities and no bonds maturing before August 2026.
Ardagh Group showed signs of earnings stabilisation in its glass packaging unit in the final three months of the year, following a period of weakness. Its metal packaging business, New York-listed Ardagh Metal Packaging, in which it has a 76 per cent stake, recorded double-digit earnings growth.
“Visibility and guidance have been poor in recent years [on the glass side of the business], so while we expect the cycle, energy prices and lower cost inflation to provide periods of respite, we are cautious of taking management’s indications at face value,” said CreditSights.
