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UPDATE 2-Ryanair lands $1 billion as European airline bonds begin to take off

Tue, 8th Sep 2020 14:40

* Ryanair raises 850 million euros in first bond in 3 years

* European airline issuance slowly picking up

* Ryanair's strong financial metrics in focus
(Adds details, comments)

By Yoruk Bahceli

AMSTERDAM, Sept 8 (Reuters) - Ryanair sold an 850
million euro ($1 billion) bond on Tuesday, its first in three
years, in a sign that European debt markets are starting to
reopen to airlines, which were crippled by the coronavirus
crisis.

The sale by Europe's largest low-cost carrier is the second
by an airline in Europe since the COVID-19 pandemic after
majority state-owned Finnair issued a hybrid bond,
which combines debt and equity features.

Investors put in 4.4 billion euros of orders for the bond,
more than five times the amount Ryanair was seeking to raise, a
lead manager memo seen by Reuters showed.

Ryanair's balance sheet, one of the strongest in the
industry with more than 3.9 billion euros of cash at June 30 and
aircraft worth about 7 billion euros, was behind investor
demand, analysts said.

It also raised 400 million euros from shareholders last
week.

"Ryanair is in a better place, therefore it's going to be
easier for it to get the financing it wants," Azhar Hussain,
head of global credit at Royal London Asset Management, said.

It is one of three airlines, together with easyJet and
Southwest Airlines, that still holds investment grade ratings,
ratings agency S&P said in August, noting all three are low-cost
carriers.

Many airlines, including Lufthansa and British
Airways owner IAG saw their credit ratings cut to
"junk" status during the pandemic.

S&P said it considers Ryanair to be one of the financially
strongest airlines as it removed its 'BBB' rating - two notches
above junk - from 'credit watch' on Monday, making an imminent
downgrade less likely.

Ryanair's bond, pricing at a yield of 3%, will pay a coupon
of 2.875%, the lead manager said.

That is more than double what Ryanair paid for longer debt
in 2017, but a fraction of the yields of more than 12% which its
bonds hit in March.

Though slowly picking up, bond issuance by European airlines
has lagged the United States, where companies including Delta
and American Airlines have raised at least $36
billion since March, ABN AMRO data shows, although many have had
to offer investors security over their assets.

"To me (Ryanair) says that the door is wide open for deals,"
Daniel Ender Aizencang, ABN AMRO fixed income strategist, said.

Still, European borrowing costs remain elevated compared to
pre-coronavirus levels, keeping some away.

IAG agreed a rights issue on Tuesday after it
was told by bankers that a debt and convertible issue it
considered in July would be too expensive.

Ryanair, which hired Barclays, BNP Paribas and Citi to
manage the sale, will use part of the proceeds to refinance an
850 million euro bond due in June 2021, a banker who worked on
the deal said.
($1 = 0.8478 euros)
(Reporting by Yoruk Bahceli in AMSTERDAM and Conor Humphries in
DUBLIN, additional reporting by Abhinav Ramnarayan in LONDON;
Editing by Louise Heavens, Mark Potter and Alexander Smith)

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