McLaren in dispute with bondholders over emergency funding

May 25, 2020 May 25, 2020

McLaren and its bondholders have clashed after the latter said they already have a claim on a collection of classic cars it is trying to pledge to new lenders.

The British sports car manufacturer has sounded out hedge funds and other investors about a new bond deal of at least £250M and has hired JPMorgan to manage the deal.

McLaren have offered to mortgage its headquarters in Surrey as well as a valuable collection of what it calls “heritage cars” to the new lenders.

Those assets would be offered up as collateral to raise money needed to ride out the delay and financial loss of the upcoming 2020 Formula 1 season along with the decrease in demand for their road cars.

But investors in McLaren’s existing £525M bond issued in 2017 are resisting the move.

They argue that the company already pledged these assets to them in that deal, when the debt was raised to buy out a stake owned by Ron Dennis who was the chairman of McLaren at the time.

Bondholders have hired US law firm Paul Hastings to push back against the new fundraising.

McLaren and JPMorgan are yet to respond.

While the company and its advisers believe the move is legal, the bondholders argue that the company is trying to abuse a loophole which would transfer ntellectual property rights across to new lenders.

Bondholders fear that certain physical assets will be transferred across to the new lenders.

The documents for the carmaker’s 2017 bond deal value the company’s technology centre, production centre and its heritage cars at nearly £600M.

They also explicitly state that the debt would not be initially secured against the classic car collection, but suggest that these vintage vehicles (then valued at £170M) would be pledged to bondholders in future.

Earlier this month, the UK government rejected McLaren’s request for a £150m loan leading to this ongoing dispute. The group’s shareholders, which include Bahrain’s sovereign wealth fund Mumtalakat, provided £300m of fresh equity to the business in March.