(Adds quote, background, details on the bond)
By Sarah Young and Abhinav Ramnarayan
LONDON, March 18 (Reuters) - British Airways-owner IAG
plans to raise about 1 billion euros ($1.2 billion)
through a bond issue, which it said would help see it through if
the pandemic-driven travel downturn lasts longer than expected.
Airlines are counting on a summer travel reboot after a year
of minimal income due to coronavirus restrictions, but rising
case numbers in some countries and delays to the vaccine
roll-out in Europe could derail the recovery.
IAG, which also owns Iberia and Vueling in Spain and Aer
Lingus in Ireland, said last month it had liquidity to ride out
the crisis, but on Thursday decided to add to its war chest.
It said the proceeds from the bonds could be used to
withstand a more prolonged downturn or provide "flexibility to
take advantage of a recovery in demand for air travel".
IAG, which is burning through about 185 million euros per
week as a result of the pandemic, has been cutting costs while
flying only 20% of its normal capacity.
It said the senior unsecured bonds would be issued in two
tranches, with 500 million euros due in 2025 and 500 million
euros due in 2029. They are expected to price on Thursday.
In a low rate environment and with economies set to reopen,
bond investors have become increasingly keen to buy debt from
well-known airlines, as it is one of the few sectors still
offering a high yield, a source familiar with the deal said.
At the initial stages of the bond sale, the four-year bonds
were being marketed at a yield of 3.25% and the eight-year bonds
at 4.25%, an announcement to investors seen by Reuters showed.
The average yield for European junk-rated corporate debt is
2.59%, Markit's Iboxx indices show.
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.
"Airlines is one of the few corners of the bond market still
offering some juice," said the source. "With international
travel expected to reopen this year, investors feel comfortable
owning this debt."
Lufthansa and easyJet have already 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.
($1 = 0.8366 euros)
(Reporting by Sarah Young; Editing by Costas Pitas, Paul Sandle
and Alexander Smith)