McLaren

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Chrisgr31

11,609 posts

210 months

Wednesday 24th June
quotequote all
andburg said:
https://www.forbes.com/sites/csylt/2020/06/23/the-...

in short;
Massive sales drop means they don't have the money to pay all the outstanding invoices and could be faced with winding up in July.
Not sure I would rely on anything written by him unless it was backed up by other sources that weren’t relying on what he wrote, although in this case it appears fairly accurate..

My impression is that the bond holders are arguing that they don’t want the security they hold released, and a McLaren are arguing they can’t get the cash to repay the bond holders unless the security is released. That would then enable them to borrow more against it, repay the existing bond holders and have cash left over. McLaren appear to be arguing that in effect the bond holders are willing to lend them more, presumably using the same assets as security, but will charge them more than a different option. They are effectively arguing the bond holders are holding them to ransom.

I don’t think we have been told who the bond holders are, how much money they are owed nor the value of the security have we?

RonaldMcDonaldAteMyCat

6,801 posts

50 months

Wednesday 24th June
quotequote all
My understanding, from the skeleton argument advanced by McLaren, is that the company needs the working capital raised by sale of some secured assets to keep the business going for the rest of this year (as opposed to paying outstanding debts).

The assets they want to sell are held as security against several hundred millions pounds worth of debt held by hedge funds and others (the figures are available in McLaren's own published materials).

The debt held by the hedge funds is administered centrally by a trustee (an advantage normally being that contractual decisions and negotiations with debt holders can be with one body, the trustee, rather than herding cats with lots of individual debt holders).

The contract with the trustee stipulates that in certain circumstances, McLaren can 'self certify' they need to raise funds by selling secured assets. They can do this, so long as the assets they wish to sell don't form the majority (I paraphrase, for lack of remembering the exact wording) of their total assets (thus rendering the security on the original debt worthless).

The current issue is that the hedge funds now say to the trustee, in the current circumstances, they do not think it should give permission for McLaren to sell the assets it wants to. Simultaneously, they have offered McLaren 'bail out' terms of their own, which McLaren believes are not as good for the business as those it could secure by selling the assets on its own terms.

All of this whilst the business acknowledges it may become insolvent by mid July.

The trustee does not want to allow McLaren to sell the assets unless it is sure it is legally able to do so, under threat of action by the debt holders if it gets the decision wrong. This confidence can be gained by the court declaring that it is contractually allowed to in these circumstances. Hence the recourse to the courts. McLaren claim that the debt holders are purposely trying to add delay to any decision to force their hand and be left with only one deal on the table to prevent insolvency. The debt holders claim McLaren do not have the right to sell the assets and threaten legal action against the company and the directors personally if they do.

Although listed as defendants, the trustees are not opposing McLaren's action, though as a matter of procedure they are technically the defendant to McLaren's claim for action to the court.

I think the above is an accurate depiction of events, though happy to be corrected.

Edited by RonaldMcDonaldAteMyCat on Wednesday 24th June 10:50

Chrisgr31

11,609 posts

210 months

Wednesday 24th June
quotequote all
RonaldMcDonaldAteMyCat said:
I think the above is an accurate depiction of events, though happy to be corrected.
Looks right to me

ralphrj

2,981 posts

146 months

Wednesday 24th June
quotequote all
I think that is a pretty good summary.

The only small change I would make is that my understanding is that the debt-holders are threatening the trustees with legal action if they allow the assets to be sold rather than legal action against McLaren.

The trustees are the defendant in the upcoming court case but in reality are just piggy in the middle.

RonaldMcDonaldAteMyCat

6,801 posts

50 months

Wednesday 24th June
quotequote all
ralphrj said:
The only small change I would make is that my understanding is that the debt-holders are threatening the trustees with legal action if they allow the assets to be sold rather than legal action against McLaren.
I've only read it once, however I think the bond holders also threatened to sue the McLaren directors for breach of fiduciary duties if they went ahead with the sale. I imagine they could also apply for an injunction against McLaren if they thought there was a legal reason the sale could not proceed.

ralphrj

2,981 posts

146 months

Wednesday 24th June
quotequote all
RonaldMcDonaldAteMyCat said:
ralphrj said:
The only small change I would make is that my understanding is that the debt-holders are threatening the trustees with legal action if they allow the assets to be sold rather than legal action against McLaren.
I've only read it once, however I think the bond holders also threatened to sue the McLaren directors for breach of fiduciary duties if they went ahead with the sale. I imagine they could also apply for an injunction against McLaren if they thought there was a legal reason the sale could not proceed.
My mistake then, I was just going by a press report.

Bertrum

417 posts

178 months

Wednesday 24th June
quotequote all
The challenge they also have is that McLaren haven't been paying Suppliers on time or at all in a long time (years) creating lots of bad blood in the supply chain.

To the point where the carbon Tub Manufacturer (name escapes me) has successfully taken charges out against the tub tooling and several XP cars.

Additionally they have apparently been shipping cars to dealers that they do not ask for, so that they can invoice and get the cash in, I imagine the dealers have no ability to pay for them however so no actual cash is present.

Its sad really as an ex employee present for the launch of the car business as we know it, to see them be completely destroyed by their own sales ambition, it all comes back to the cost of developing a car from scratch was vastly under estimated creating a need to constantly modify without ever being able to update the underlying architecture (tub/engine) meaning the products are becoming increasingly compromised in the way of design and performance.

The money required to spend their way out of the trap they find themselves is north of a billion, which no one is going to lend them and they would with the current strategy never repay.

I think it has gone to far now and It is at the point where the group need to cut free the road car business before it takes everything down with it. They really are delaying the inevitable.

DanielSan

14,884 posts

122 months

Wednesday 24th June
quotequote all
Bertrum said:
Additionally they have apparently been shipping cars to dealers that they do not ask for, so that they can invoice and get the cash in, I imagine the dealers have no ability to pay for them however so no actual cash is present.

They've been pulling that trick since day one pretty much, it's how they hit their numbers for first couple of years, and as a result the cars were being sold at discount by dealers to pay for them, and so you end up with their depreciation being so catastrophic.

Chrisgr31

11,609 posts

210 months

Wednesday 24th June
quotequote all
This article https://www.racefans.net/2020/06/24/why-mclaren-an... suggests the Bahrainis have already agreed to stump up the cash but the case is going ahead anyway

RonaldMcDonaldAteMyCat

6,801 posts

50 months

Wednesday 24th June
quotequote all
Chrisgr31 said:
This article https://www.racefans.net/2020/06/24/why-mclaren-an... suggests the Bahrainis have already agreed to stump up the cash but the case is going ahead anyway
The quote attributable to the "McLaren insider" has that whiff of bullst about it. You don't tend to go to High Court and argue very hard for one of the most expedited trials known in English courts for a matter of this complexity, unless you really have to.

There's no doubt they have willing buyers for the assets, thats not the issue. The issue is whether they're allowed to sell them at all. If the buyers of the assets are existing shareholders of McLaren, that adds a layer of complexity as you're redistributing the group's value to people who stand to lose if the company folds. It wouldn't be right for debtors to lose out and shareholders maintain assets at what might be favourable terms in the event the group were to fold.

andburg

3,744 posts

124 months

Wednesday 24th June
quotequote all
Have to wonder whether this is why Renault won’t give them engines to test with...perhaps McLaren are behind on payments

skwdenyer

8,671 posts

195 months

Wednesday 24th June
quotequote all
Chrisgr31 said:
This article https://www.racefans.net/2020/06/24/why-mclaren-an... suggests the Bahrainis have already agreed to stump up the cash but the case is going ahead anyway
Is it possible the Bahrainis are the ones buying the property and cars, rather than putting more equity in?

Dermot O'Logical

932 posts

84 months

Thursday 25th June
quotequote all
Pitpass attempts to clarify the somewhat muddy waters:

https://www.pitpass.com/67108/McLaren-turns-to-Bah...


Fortitude

384 posts

147 months

Thursday 25th June
quotequote all
...these latest comments makes very depressing reading...

What the hell must Ron Dennis be thinking about ALL of this?

Ron put his life and soul into this Company... ...for it to potentially become insolvent... ...McLaren, insolvent...

RonaldMcDonaldAteMyCat

6,801 posts

50 months

Thursday 25th June
quotequote all
If the Bahrainis are willing to chuck money at McLaren without any security, does this mean they're going to be pushing to turn it into equity in case of default?

TheDeuce

5,468 posts

21 months

Thursday 25th June
quotequote all
RonaldMcDonaldAteMyCat said:
If the Bahrainis are willing to chuck money at McLaren without any security, does this mean they're going to be pushing to turn it into equity in case of default?
It means they'll just buy more of the group. Plan a= borrow to shore up liquidity. If the securities issues to be heard in court make that impossible, plan b= sell equity to get the money. There isn't really a third option... Borrow or sell. Or I suppose give up but that seems unlikely.

Tbh the Bahrainis could conceivably own it lock stock (or near enough) after this, and long term if they get the car making side profitable, it could one day be seen as a steal. It's a hell of a brand - there is potential for success, it's just that making only sports cars these days is a very tricky business for anyone.

Chrisgr31

11,609 posts

210 months

Thursday 25th June
quotequote all
Dermot O'Logical said:
Pitpass attempts to clarify the somewhat muddy waters:

https://www.pitpass.com/67108/McLaren-turns-to-Bah...
That’s basically the Racefans article from yesterday rewritten is t it?

TheDeuce

5,468 posts

21 months

Thursday 25th June
quotequote all
Chrisgr31 said:
That’s basically the Racefans article from yesterday rewritten is t it?
Yes. And the racefans article didn't add anything to what was already known anyway.

The court case isn't even a main event in all this, it's just a result of what is happening and public... The big news should actually be what McLaren will do to turn around the business under such difficult circumstances. Regardless of the courts case or the results, the business will still need sorting out asap or it will fail.

thegreenhell

6,957 posts

174 months

Thursday 25th June
quotequote all
Chrisgr31 said:
Dermot O'Logical said:
Pitpass attempts to clarify the somewhat muddy waters:

https://www.pitpass.com/67108/McLaren-turns-to-Bah...
That’s basically the Racefans article from yesterday rewritten is t it?
All of these sites just copy off each other, or make up their own stories for the other sites to copy. You won't find any real news on any of them.

TheDeuce

5,468 posts

21 months

Thursday 25th June
quotequote all
thegreenhell said:
All of these sites just copy off each other, or make up their own stories for the other sites to copy. You won't find any real news on any of them.
Indeed. All there is factually is the outline of McLarens court claim. In the end, anyone who wants to know more and what it means beyond a good or bad day in court needs to use their nouse.

Whatever the result there will be another slew of articles which will just rehash what is already a matter of public record. Meanwhile behind closed doors McLaren will be working on the best next steps.

It's what they do next that matters. And there won't be any articles about that until they've done it.