Air Freight News

Air Baltic forced to pay up in second run at junk refinancing

Air Baltic Corp AS is having to pay the highest coupon seen in Europe’s junk bond market this year to pull off a last-minute refinancing deal, even with Latvia’s government supporting the sale.

The Latvian airline is marketing a €340 million ($366 million) junk bond with a yield of 14.5%, to push back the need to repay debt maturing in two months, according to a person with knowledge of the deal. The high rate pulled in over €850 million of orders, enabling it to upsize the offer and trim the pricing.

At that level, it would still be the highest coupon seen in the European high-yield bond market since September, when Adler Group paid a 21% coupon, according to data compiled by Bloomberg. It would mean the company paying nearly €50 million in interest costs every year.

It’s Air Baltic’s second attempt at a bond sale, and this time the Latvian government looks set to help get it over the line. Investors are demanding higher rates for its debt since Russia’s invasion of Ukraine, the company’s Chief Executive Officer Martin Gauss said in January.

The company was forced to shelve a planned junk sale in October as fears over geopolitical turmoil unsettled markets. Now the government has parliamentary approval to purchase as much as €136 million of the debt. The state could buy the bonds alongside private investors, on the same terms, transport minister Kaspars Briskens said last week.

Proceeds from the senior secured deal will refinance the company’s €200 million bond maturing in July 2024, as well as helping to repay a loan from the state. Normally firms look to refinance one or two years ahead of time.

Air Baltic has switched the banks on this effort as well as the currency. The new euro bond offering sees BNP Paribas SA taking the lead, alongside bookrunners Citigroup Inc., JPMorgan Chase & Co., Morgan Stanley and SEB AB. On the first attempt, lead bookrunners JPMorgan and Morgan Stanley were planning a benchmark US dollar deal.

BNP Paribas, Morgan Stanley, Citigroup, SEB and JPMorgan declined to comment, while Air Baltic didn’t immediately respond to requests for comment by Bloomberg News.

The airline is also pursuing a plan for an initial public offering after recording its first annual profit since 2018, and has engaged several advisors with a view to strengthen liquidity and its equity base, the company said in March. It’s in discussions with a strategic investor for an equity investment, according to executives on a recent call.

The Latvian state owns 97.97 percent of Air Baltic’s shares, while Danish businessman Lars Theusen’s Aircraft Leasing 1 owns the rest. 

Air Baltic was significantly hurt by the Covid-19 pandemic. Then Russia’s invasion of Ukraine has meant the group is not operating any routes to Russia or Belarus, while passenger services to Ukraine have also been suspended due to safety concerns.

Bloomberg
Bloomberg

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© Bloomberg
The author’s opinion are not necessarily the opinions of the American Journal of Transportation (AJOT).

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