Aston Martin bondholders Arini and Tresidor have filed an application in a New York court seeking discovery from HPS Investment Partners, Authentic Brands, Moelis, and Lazard for use in anticipated UK litigation over the luxury carmaker’s recent financing and asset transfers, according to 9fin sources.
The bondholders filed the application on Monday (24 August) under Section 1782 of the US Code, a provision that allows parties to seek evidence in the US for use in foreign proceedings. The application, filed in the US District Court for the Southern District of New York, is expected to be served on the four firms today (25 August), according to the sources.
The bondholders are seeking documents and testimony for anticipated proceedings in England under Section 423 of the Insolvency Act 1986, according to the sources. The provision allows a court to grant relief where a transaction at an undervalue was entered into for the purpose of putting assets beyond the reach of creditors or otherwise prejudicing their interests.
The US application marks an escalation in a dispute between Aston Martin and holders of its senior secured notes over the company’s £550m financing package with HPS and associated transfers of intellectual property.
The bondholder co-op, which includes Arini, BlackRock, and Sculptor and holds more than 90% of Aston Martin’s senior secured notes, had previously sent the company a letter before action raising potential claims for breach of the New York-law governed bond indenture and under Section 423.
According to sources familiar with the bondholders’ position, the group turned to the US courts after what it regarded as inadequate disclosure by Aston Martin despite repeated requests for information about the transactions.
The bondholders have raised concerns over the governance process surrounding the financing, including the level of scrutiny applied by Aston Martin’s board before approving the transactions and the company’s disclosure and transparency around them, the sources said.
They have also raised concerns about what they regard as a risk of asset stripping through the transfer of valuable assets from the UK into Cayman Islands entities, as well as the relationships between HPS, Authentic Brands, and entities affiliated with Aston Martin executive chairman Lawrence Stroll, which they believe could give rise to potential conflicts of interest, according to the sources.
The root of the conflict
Aston Martin announced a £550m financing package in July, comprising a £450m senior secured term loan from HPS and a £100m delayed-draw term loan.
As part of the transaction, intellectual property was moved into a non-guarantor restricted subsidiary within Aston Martin’s restricted group, as 9fin reported. The assets form part of the collateral package securing the HPS financing, giving HPS structural priority over the existing bonds with respect to that collateral.
The additional £100m is linked to a transaction with Authentic Brands under which the US brand-management company would acquire a 50.1% interest in certain non-automotive intellectual property rights.
HPS is a shareholder in Authentic Brands and also holds a minority stake in the privately owned Aston Martin Formula One team, which is legally separate from the listed carmaker and controlled by Lawrence Stroll.
The financing was designed to bolster Aston Martin’s liquidity and refinance its £170m super senior revolving credit facility and £20m of borrowings from Yew Tree, with the company saying in July that the transaction would leave it with around £340m of pro forma liquidity as of 30 June.
The Section 1782 filing potentially gives the bondholders another route to obtain information ahead of bringing proceedings in the UK, following their earlier requests for disclosure from Aston Martin.
Aston Martin, HPS, Authentic Brands, Moelis, and Lazard did not immediately respond to requests for comment.
