Acquisition after acquisition, all was well... until nothing was. The first warning signs materialised when inflation soared, boosted by Russia’s invasion of Ukraine. The combination of a sharp rise in interest rates, the price of gas and electricity, and a fall in demand in 2023 precipitated the tipping point. Ardagh, which had already split off its metal food packaging division into a joint venture--Trivium--in which it still holds a 42% stake, found itself over-leveraged. Its net debt/Ebitda ratio rose from 4.7 to 6.8, with debt jumping from $5.8bn to $8.6bn. Amongst the causes: the issue of $600m of 6% guaranteed green bonds (maturing in 2027), and the $663m acquisition of the South African group Consol Holding Property.
At the end of December 2024, according to the annual report published in February, debt reached $10.6bn, or 7.4 times Ebitda. This was despite an emergency loan of $1.04bn granted in April 2024 by the Apollo Global Management fund... at 9% interest (!). This operation was designed to refinance a $700m bond maturing this year, whilst buying back part of the debt at a better price. The payment of the latter portion is thus deferred until 2029.
Aside from its debt, Ardagh’s results are not catastrophic. The group, which operates 59 production sites in 16 countries and employs some 19,000 people, generated sales of €9.1bn, including €1.27bn in Ebitda. But for years it has been dragging along debt ratios that border on the unsustainable.
Tractations and legal proceedings
This Monday, as usual, the Ardagh Group--of Irish origin but Luxembourgish by adoption--issued a terse statement, referring the media to a communications firm based in Ireland. It states that the group “continues to engage in constructive discussions with the SUN Group and the SSN Group of noteholders regarding the terms of a potential transaction to put in place a sustainable capital structure. The update sets out the latest proposal received from the SSN Group and the group’s counter-proposal to the SSN Group during these discussions. No proposal has been accepted to date and the review of the Group's capital structure is ongoing.”
For the record:
- The SUN group includes unsecured bondholders--those with the most to lose.
- The SSN group brings together holders of secured bonds--legally better protected, and therefore harder to move.
The release also states that “certain holders of 4.750% senior bonds due 2027 have taken legal action against certain members of the group. Ardagh believes that this claim is unfounded and intends to defend itself vigorously.”
New directors
At the end of 2024, a group of bondholders offered to inject $1.2bn in exchange for a majority stake, leaving the metal packaging division with only around 20% of the capital of a new entity. This scenario is being taken seriously, particularly in the light of the departures at the end of the year of four directors of the Luxembourg financial holding company ARD Finances, where the riskiest bonds are held: Paul Coulson (founder and 36% shareholder), chairman Herman Troskie, CFO John Sheehan and Yves Elsen.
They have been replaced by two Luxembourg directors specialising in restructuring: Johannes de Zwart and Manuel Baldauff, say sources close to the matter. Earlier, in August 2024, Ardagh had already announced the appointment of Stefan Schellinger as the new CFO with effect from 1 September. Schellinger has more than 25 years of experience, including at ContourGlobal and Essentra.
Faced by the crisis, Ardagh has relaunched the sale of its stake in Trivium. In autumn 2024, the Platinum Equity fund was in advanced negotiations to buy the joint venture for more than $3.5bn, which would enable Ardagh to pocket around $1.5bn. The group has also disposed of non-strategic assets (such as the Wilson plant) and had already partially floated its Ardagh Metal Packaging division on the NYSE in 2021, although this was not enough to solve the structural problem of debt.
On the industrial front, rationalisation has been brutal. In North America, several glass plants have been closed or mothballed between 2023 and 2024:
- Wilson (North Carolina): 337 job cuts;
- Simsboro (Louisiana): 245 job cuts;
- Seattle (Washington) and Houston (Texas): more than 200 people affected per site.
In Europe, Ardagh announced at the end of 2024 a capacity reduction affecting around 320 employees in Germany and the Netherlands, with the closure of the Drebkau site (Germany). Production lines have also been closed in Doncaster (UK), according to media reports.
Ongoing discussions suggest that the debt ratio could be reduced to between 5x and 6x Ebitda. This is far from ideal, but it would give the group some breathing space. But can we expect a rapid turnaround? In the midst of a stock market storm and under regulatory pressure (linked in particular to US executive orders), uncertainty remains.
This article was originally published in .