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(Adds pricing details, share price)
By Sarah Young and Abhinav Ramnarayan
LONDON, March 19 (Reuters) - British Airways owner IAG
raised 1.2 billion euros ($1.43 billion) in a bond
issue it said would help it 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 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 said 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 said 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 that
demand was higher than expected, enabling it to raise 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 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 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 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. 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 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 = 0.8386 euros)
(Reporting by Sarah Young
Editing by David Goodman and Alexander Smith)
