McLaren Just About Dead: Insolvency Days Away

McLaren is scrambling for cash. It’s so desperate it is trying to use its headquarters in Woking, UK, and its classic car collection as collateral for loans. The problem is it already did that exact thing in 2017 to buy out shareholder Ron Dennis for almost $350 million.  Also, it paid for transaction fees, helped refinance debt, and repaid shareholder loans. Because of that those creditors are now trying to block McLaren from using the same collateral for additional new loans. The frenzy that created this mix-up is because McLaren is just about dead and nsolvency is just days away.

Last week we heard rumors McLaren was looking to sell part of its F1 team

1993 McLaren F1
1993 McLaren F1 | McLaren

Much of this latest crisis is due to the pandemic. Car sales are frozen in the UK and revenue its Formula I racing generates is almost non-existent because F1 has been delayed. That represents about 12.5% of its yearly revenue. Last week we heard rumors McLaren was looking to sell a portion of its F1 team. This happened right after it announced that 25% of its staff would be let go. 

Its supercar sales represent 84% of its revenue, with the last 5% coming from engineering activities applied to other industries. Revenue was so high that it planned on reducing the number of cars it sold in 2020. This would make those it built more exclusive and also more expensive. Shareholders forked over $368.8 million to help it weather the reduction in car production. 

Once the coronavirus shutdown occurred McLaren shifted shareholder money to remain afloat

green McLAren GT Verdant with scissors doors open

Once the coronavirus shutdown occurred McLaren shifted that shareholder money to remain afloat. Soon it ran out of that money and has been hunting around for more since March. The first three months’ sales in 2019 amounted to almost 1,000 cars. For the first three months of 2020, it only sold 300. 

Revenue fell from $217 million to $136 million. Pre-tax loss jumped 600% to $165 million. At the end of this month, it needs to pay for the cars it built in the first quarter. McLaren suppliers are paid 60 days after the end of the month they submit invoices. That’s why the McLaren Group in a statement last month said it will face “an unexpected need for liquidity which will impact the Group around the middle of the year.”

Without many funding avenues left to pursue it is doubling down on the headquarters/car collection collateral path. It is suing the earlier creditors to release the security over the headquarters and car collection according to Forbes. This way it can sell parts of or all of them to secure another loan. 

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Bondholders were afraid without the security on the assets McLaren could walk away

With McLaren trying to get new funding through its collateral proposal the bondholders refused the suggestion. Instead, they proposed another financing plan because it was afraid without the security on the assets McLaren could walk away without any repercussions. McLaren’s suit limits the court’s time for a favorable declaration to 17 days in order to pay who it owes. That takes into account compiling contracts and securing the funding before everything is actually due. That is how close McLaren is cutting things. 

According to the noteholders’ lawyers, it is cutting it too close. It says in filings that litigation over the assets will not be concluded before the money is owed. In that case “the one remaining realistic financing option open to the Group, namely a transaction with the noteholders will collapse and the Group will then have no realistic prospect of avoiding insolvent liquidation.”

McLaren is pushing for a two- or three-day trial starting July 2. Right now it is looking like McLaren is on the ropes.