AA will lay bare the extent of its debt problems today when it releases interim results, with the company expected to say that it must pay about £150m in annual interest costs.
The roadside assistance group is saddled with over £3bn of debt, linked to its takeover by private equity firms Permira, Charterhouse and CVC and investors are expecting an update on the company’s refinancing.
In March, AA announced a £935m refinancing – £200m in equity and £735m in low-interest bonds – to pay down borrowings inherited from its separation from Saga in 2013.
The company expects this to reduce annual financing costs by around £45m. However, the company has limited outlays so expects upfront membership payments to help cover the increase. The AA will also invest £128m in renewing its IT systems, £78m of which is expected to be spent this year and is likely to eat into margins.
A Liberium note said it was expecting the placing of new shares and investment in the six months to 31 July to eat into earnings per share, but was optimistic about future growth and the cots-saving impact of new IT systems. It also predicted net debt would be down by the end of the financial year, and any dip in earnings would be made up by the next financial year.