Aer Lingus owner International Airlines Group (IAG) has raised €1.2 billion in a bond issue that it said will help it to survive a potentially longer than expected travel downturn.
Airlines are counting on a summer travel reboot after a year of minimal income because of coronavirus restrictions, but rising case numbers in some countries and delays to Europe's COVID-19 vaccine rollout could derail the recovery.
IAG, which is burning through approximately €185 million a week as a result of the pandemic, has been cutting costs while flying only 20% of its normal capacity.
The owner of British Airways, Iberia and Vueling said last month that it had sufficient liquidity to ride out the crisis but would continue to explore new debt options. On Thursday March 18, it decided to add to its war chest.
It said that 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 final terms of the bond, IAG said on Friday March 19 that demand was higher than expected, enabling it to raise €1.2 billion, more than the €1 billion originally planned.
The senior unsecured bonds which were issued in two tranches with €500 million due in 2025 and €700 million due in 2029, were priced at a yield of 2.75% for the first and 3.75% for the second tranche.
IAG had started marketing the bonds at a yield of 3.25% for the four-year and 4.25% for the eight-year, but after recording over €3 billion of demand from yield-starved investors, was able to tighten it significantly by 50 basis points on each.
Such a tightening is relatively unusual in 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 in 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 said.
Although IAG lost its investment grade rating last year after the pandemic wreaked havoc on airlines, progress on COVID-19 vaccinations has led investors to revisit the sector.
Shares in IAG traded down 3.6% at 207 pence at 1132 on Friday March 19. The stock has gained 27% over the past month.
Lufthansa and easyJet have both tapped bond markets in recent months, with the German airline repaying a big portion of a government bailout after its latest €1.6 billion debt sale and easyJet raising €1.2 billion in February.
Issue Managers
BBVA, Goldman Sachs, Morgan Stanley and Santander are managing the IAG issue.
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