IAG, the Spanish-based parent company of British Airways, announced a new fund raising on Thursday.
During the day, the company raised a further €1.2 billion via a bond sale. The money will be repaid in two tranches:
- €500 million to be repaid in March 2025
- €700 million to be repaid in March 2029
For clarity, the bonds are only for sale to institutional investors and not to the general public.
The four year bonds were issued with a coupon of 2.75% (down from a proposed 3.25% at the start of the day). The eight year bonds were eventually priced at 3.75%, down from a proposed 4.25%.
Despite the cut in the coupon, it is still above the European average for junk-rated corporate debt of 2.59%. The bonds are rated B1, which is a ‘junk’ rating.
For a quick comparison, the typical five year fixed rate UK savings account is currently paying 1% to 1.25%. There would be considerable demand – albeit with considerable risk compared to a savings account – if similar £-denominated bonds were offered to UK private investors.
The stated purpose of the fund raising is to “include but not be limited to”:
- strengthening the Group’s balance sheet and increasing the Group’s overall liquidity position
- helping the Group withstand a more prolonged downturn in air travel
- providing the Group with the operational and strategic flexibility to take advantage of a recovery in demand for air travel
The official announcement is on the IAG website here.
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