Ardagh Restructuring Plan Expected to Fully Reinstate Senior Secureds, Partly Equitize Unsecureds and Wipe Out HoldCo PIKs; Co. Could Reduce Debt Before Transaction With Undrawn Apollo Exchange TL

Credit Research: Jeremy Sherby, CFA
Reporting: Chiara Elisei, Robert Schach, Farooq Baloch

Key Takeaways

• Ardagh is reported to be expected to enter into a restructuring plan with debtholders to tackle $6.7 billion of notes due 2026 and 2027, keeping secured noteholders whole while partially equitizing its unsecured notes and wiping out the ARD Finance holdco notes.
• Given the fall in prices across the capital structure, the company may have plans to reduce, or may already have reduced, its debt through utilizing the $250 million exchange term loan provided by Apollo in April 2024, which can be used to buy back and retire Ardagh Group’s unsecured notes or ARD Finance’s holdco PIK notes.
• While the timing of a potential transaction is unknown, Ardagh has not yet scheduled its fourth-quarter 2024 earnings call, while Ardagh Metal Packaging has a call scheduled to discuss its earnings on Feb. 27. Over the past few quarters, both companies have released earnings on the same day.

Restructuring Plan Expected to Keep Secureds Whole, Unsecureds to Be Partially Equitized, PIK Notes Wiped Out

Ardagh’s senior secured notes are expected to be fully reinstated under an upcoming plan to address the group’s roughly $6.7 billion 2026 secured and 2027 unsecured and PIK note maturities, according to sources. The glass packaging manufacturer has been exploring various options and is in talks with its largest creditors, but a formal proposal is yet to be circulated, sources told Octus, formerly Reorg.

The unsecured notes, which appear to be the fulcrum security of the capital structure, are expected to face an impairment in the range of 50% to 60% via a debt equitization, while the PIKs would be wiped out, the sources said.

The post-restructuring equity would be mostly awarded to unsecured creditors, with the PIKs and majority shareholder Paul Coulson receiving some token equity too. Options to address the senior secured notes and keep them whole could include an exchange offer or an amend-and-extend, the sources added.

A key constraint on the restructuring is the group’s low cash generation as Octus has previously discussed HERE. Free cash flow from the glass business, before dividends from Ardagh Metal Packaging, or AMP, has been negative each of the past three full years and in the trailing 12-month period ended Sept. 30, 2024, as shown in the table below. As a result, the coupon on the reinstated senior secured notes is expected to be below market price, sources said.

The debt has been actively trading with real-money and long-only funds selling out or reducing their positions since the Apollo deal. Meanwhile, hedge funds have been buying in, with some building sizable stakes, the sources said.

Buy-siders have been expecting negotiations to gain momentum since late last year, and after the company announced on Jan. 7 that it had added two members with restructuring and insolvency experience to its board, sources viewed this as a further sign that the process would be kicking off in earnest.

The company simultaneously announced the resignation of four other board members, including Oliver Graham, who serves as the CEO of Ardagh Metal Packaging. Graham remains CEO of AMP, and he and other resigning board members that were also on the board of AMP retained those respective positions. Octus believes this may also be a signal of a further shift and possible splitting of the two businesses.

As of publication, AMP has scheduled its fourth-quarter and full-year 2024 earnings release and conference call for Feb. 27. Ardagh Group, however, has not yet scheduled its fourth-quarter release. The two companies have generally issued separate press releases on the same day announcing when each company would release results, which have been the same day over the past few quarters.

Apollo Funds Likely to Play Role In Restructuring With Available $250M TL

We believe that Apollo is likely to play a key role in any restructuring, following the transaction in April 2024 in which it provided a €790 million term loan, or about $884 million at Sept. 30, 2024, exchange rates, which provided Ardagh the cash needed to pay off $700 million of senior unsecured notes due 2025. The transaction also included a $250 million exchange term loan facility, which was undrawn as of Sept. 30, which allows Apollo to exchange Ardagh Group or ARD Finance debt it holds for new debt at the borrower.

Given the current discount in trading prices across the Ardagh Group and ARD Finance structure, we believe the $250 million exchange facility could be used to potentially take out a meaningful amount of either the unsecured notes or the ARD Finance holdco PIK notes, or a mix of both.

As of publication, the PIK notes were indicated in a range of 9 to 12, down by about 10 points from the low 20s in the last six months, according to Solve, while the dollar-denominated unsecured notes were indicated at about 55. The £400 million issuance of the same debt was about 48. This facility could be used by the company to reduce the balance of notes that would partake in any restructuring.

As noted above, it seems realistic that Ardagh will likely have to perform some further liability management exercise or distressed exchange as it does not appear to have the liquidity to pay off the senior secured notes due 2026, and the only realistic option for a refinancing would likely require it to have a plan to deal with the its $2.336 billion in unsecured maturities in 2027.

As Octus has noted previously, given the levels of free cash flow generation, refinancing Ardagh Group’s debt at current market interest rates does not appear to be a viable solution.

The company also lacks the combined liquidity and secured debt capacity that would be needed to pay off the maturities of both the 2026 secureds and 2027 unsecureds. We expect that the company would struggle to raise unsecured debt at this time and, based on our understanding, lacks the necessary incremental secured debt capacity to refinance the $2.336 billion in unsecured maturities it faces between now and the end of 2027. Ardagh’s liquidity was $1.342 billion as of Sept. 30.

Octus believes that owing to the concentrated equity ownership of Ardagh Group SA by founder and board chair Paul Coulson, there is likely to be a large disincentive to restructure the company’s debt in either a U.S. chapter 11 or similar U.K. or European scheme, which would almost certainly wipe out Coulson’s equity interest.

Organization Chart

Octus has prepared a summary organization chart of Ardagh Group and its related entities. This chart includes the company’s transaction with Apollo, where it used its previously unencumbered stake in AMP as security to borrow €790 million from funds managed by Apollo.

Capital Structure

Ardagh’s consolidated capital structure as of Sept. 30 is shown below. Debt issued by Trivium is not shown in the below capital structure, as Ardagh’s ownership interest is only 42%, making it an equity investment and therefore not consolidated. Octus assumes that the intercompany loan to Ardagh Group from AIHS matures the same time as the AIHS facilities lent by Apollo.