LONDON (Reuters) – British Airways owner IAG raised 1.2 billion euros ($1.43 billion) in a bond issue it stated would assist it to survive a potentially longer than expected travel downturn.
Airlines are counting on a summer travel reboot after a yr of minimal income due to coronavirus restrictions, but rising case numbers in some nations and delays to Europe’s COVID-19 vaccine rollout might derail the recovery.
IAG, which is burning by about 185 million euros a week as a result of the pandemic, has been cutting costs while flying only 20% of its normal capacity.
The owner of Iberia and Vueling in Spain and Aer Lingus in Ireland stated last month it had sufficient liquidity to ride out the crisis but would continue to explore new debt options. On Thursday, it decided to add to its war chest.
It stated the proceeds could be used to withstand a more prolonged downturn or provide “flexibility to take advantage of a recovery in demand for air travel”.
Announcing the final terms of the bond, IAG stated on Friday that demand was higher than expected, enabling it to lift 1.2 billion euros, more than the 1 billion euros originally planned.
The senior unsecured bonds which were issued in two tranches with 500 million euros due in 2025 and 700 million euros due in 2029, were priced at a yield of 2.75% for the first and 3.75% for the second tranche.
IAG had begun marketing the bonds at a yield of 3.25% for the four-year and 4.25% for the eight-year, however, after recording over 3 billion euros of demand from yield-starved investors, was able to tighten it significantly by 50 basis points on each.
Such a tightening is relatively unusual within the bond market and the final pricing level represents a significant result for a company facing seven-year borrowing costs in excess of 7.5% in September within the midst of the COVID-19 crisis.
In a low-rate environment and with economies set to reopen, bond investors have become increasingly keen to buy debt from well-known airlines because it is one of the few sectors still offering a high yield, a source familiar with the deal stated.
Although IAG lost its investment-grade rating last yr after the pandemic wreaked havoc on airlines, progress on COVID-19 vaccinations has led buyers to revisit the sector.
Shares in IAG traded down 3.6% at 207 pence at 1132 on Friday. The stock has gained 27% over the past month.
Lufthansa and EasyJet have each tapped bond markets in recent months, with the German airline repaying a big portion of a government bailout after its latest 1.6 billion euro debt sale and EasyJet raising 1.2 billion euros in February.
BBVA, Goldman Sachs, Morgan Stanley, and Santander are managing the IAG issue.
