The AA Working With Evercore to Address 2022 Maturities

U.K. insurance and roadside assistance group The AA is working with Evercore on possible ways to deal with its notes due July 31, 2022, sources told Reorg.

The AA has two sets of notes due July 31, 2022: its £372 million of A5 senior secured notes and £541 million of outstanding B2 notes. The group said at the end of April that it intends to continue to “proactively manage” its capital structure, including refinancing of the A5 and B2 notes due in 2022, subject to market conditions.

Sources said that the company is exploring several options to deal with its high-yield B2 notes. Possible strategies include an exchange offer consisting of new notes and a partial cash repayment for existing bondholders, or the issuance of a convertible bond, which would be detrimental for existing shareholders. The group may also consider the sale of its insurance division, sources added.

Currently, The AA has a market capitalization of about £157 million. Its A5 and B2 notes are quoted at 97 and 84, respectively, sources said.

On April 23, the company announced the early drawdown of its £200 million senior term facility to de-risk the planned refinancing of the remaining £200 million A3 notes due July 31, 2020.

As part of some debt management transactions, the company bought back £32 million of A and B notes for £28 million cash during the year and, in February 2020, exchanged £325 million A5 notes into new longer-dated A8 notes, which enabled the group to increase its average debt maturity from 3.3 to 3.9 years.

As at Jan. 31, the group had cash and cash equivalents of £149 million and an available working capital facility of £50 million, as reported. However, the cash balance includes £70 million of restricted cash which relates to amounts of restricted ring-fenced and non ring-fenced cash which is subject to contractual or regulatory restrictions.

The AA’s revenue for the year ended Jan. 31 rose 2% year over year to £995 million, while EBITDA grew 3% year over year to £350 million. Free cash flow increased significantly to £83 million, from £12 million in the previous year. Operating cash flows rose 23% to £317 million, while capital expenditure fell 16% to £69 million. Net cash flows increased by £43 million.

Discussing the Covid-19 crisis, The AA said it expects the company’s performance in 2020 to be robust in the circumstances and only slightly below that of the previous year. To minimize the impact on trading, a number of short-term measures have been enacted, including no pay rises, a suspension of its usual bonus scheme, a general hiring freeze, a 15% reduction in pay for all board members for three months, and tight cost controls across the business.
--Luca Rossi