Ten years ago last month, Dublin businessman Paul Coulson walked away from a €3 billion deal to buy a glass-bottle business being sold by French building materials group Saint-Gobain.
It seemed a rare moment of restraint for a man in a hurry, having spent the previous 15 years turning a once sleepy Irish bottle company into a multibillion-euro packaging giant – Ardagh Group – through a series of purchases funded by debt raised in the high-cost, junk-bond market.
It would not last long. Less than a year later, Coulson unveiled a similar-sized transaction, but one that would catapult Ardagh into the business of making cans for beers and fizzy drinks.
Today, that business – Ardagh Metal Packaging (AMP), whose customers range from Coca-Cola and Heineken to Nestlé – has surfaced as a prized asset as Coulson and holders of some of wider group’s $12.5 billion (€10.7 billion) of borrowings scramble to salvage what they can from an empire saddled with too much debt. Coulson effectively owns 36 per cent of Ardagh Group.
Ardagh Group has acknowledged for more than a year that it needs to reduce its liabilities, after both its glass and beverage cans businesses had been hit since the Covid-19 pandemic by inflation, soaring interest rates, and soft consumer demand on both sides of the Atlantic.
The heavily-indebted business proposed in March that a group of senior unsecured bondholders write off much of the $2.32 billion they are owed in exchange for taking full ownership of the glass containers part of the business.
The plan also envisaged Ardagh Group spinning its shares in AMP into new company (NewCo). This would be 80 per cent owned by Coulson and other existing Ardagh Group shareholders – with the unsecured creditors receiving the remaining 20 per cent. Holders of a further $1.79 billion of the group’s riskiest debt, so-called payment-in-kind bonds issued by a holding company at the top of the Ardagh corporate tree, know they’re toast, with these notes trading below 5 per cent of their original value.
Talks with the unsecured creditors broke down in May after they pitched a proposal that would see them take 40 per cent, rather than 20 per cent, of AMP, which has seen its prospects improve in recent quarters, even as the glass containers arm of the group continues to grapple with weak demand. The unsecured creditors also wanted the $784 million of preference shares they were being offered in the NewCo to be increased to $1.07 billion.
AMP, in which Ardagh Group has a 76 per cent stake, is listed on Wall Street, where investors have also recently come to appreciate the improving outlook for this business – even as the glass side struggles.
The market value of AMP, which has $3.98 billion of ring-fenced borrowings, has jumped more than 45 per cent to $2.59 billion so far this year. This was driven by a spike in April when its chief, Oliver Graham, signalled that the business had “turned a corner”, helped by a rebound in demand for energy drinks, sparkling water and health segments.
The value of Coulson’s indirect 27 per cent stake in AMP has increased as a result to more than $700 million. This is well off the $1.7 billion it was worth when the stock debuted on the New York Stock Exchange almost four years ago. It is also a fraction of the now 73-year-old’s €2.4 billion interest in the wider Ardagh Group when it peaked in April 2021 – before the group delisted and floated its beverage cans unit.
It emerged last week that certain bondholders have offered Coulson – who remains on the board of the group, having retired as chairman in late 2023 – and other investors in Ardagh Group $250 million to hand over total control of the empire to creditors and walk away. Shareholders include management and investors that remained on board a tiny version of the current group that was listed in Dublin more than two decades ago.
The bondholders clearly do not feel the need to keep Coulson on after a restructuring. This differs from the case of fellow former junk-bond darling, Denis O’Brien, when his overindebted Digicel mobile phone company ran out of road two years ago.
Digicel had no equity value when its bondholders took control in a subsequent debt-for-equity swap. However, the creditors left O’Brien with a 10 per cent stake and stock warrants that would entitle him to a further 10 per cent, subject to the company meeting certain targets, knowing they needed him to maintain key relationships with regulators and politicians across its 25 emerging and, in some cases, frontier markets.
The problem for Ardagh Group bondholders is the corporate web structure – including a company set up in April 2022, at a time when interest rates were soaring globally, under the group to hold its 76 per cent stake in AMP. This was designated a so-called unrestricted subsidiary, putting its assets out of reach of group creditors. The directors of that subsidiary sought fit last year to set up another unit to hold the prized asset.
Bondholders thinking they can wave off Coulson and a small number of legacy investors in Ardagh Group with a $250 million check had better have the bottle for a battle.
