IAG boosts liquidity amid “uncertainty” with €825mn bond

IAG International Airlines Group will raise EUR825 million euros (USD1 billion) from a senior unsecured bond, convertible into shares, a further attempt to bolster its balance sheet amid “the continuing uncertainty in respect of air travel,” it said in a disclosure to investors on May 11. Cash burn across the group, which owns Aer Lingus, British Airways, Iberia, LEVEL, and Vueling Airlines, was estimated to be EUR185 million (USD224 million) per week in the first quarter of 2021. With Covid-19 travel restrictions continuing across Europe, IAG has shifted its focus to raising funds. Commenting on the group’s first-quarter results last week in which it posted an operating loss of EUR1.135 billion (USD1.38 billion) – double the loss in the same period last year – IAG chief executive Luis Gallego said at a news conference on May 7 that the group forecasted a travel recovery in its markets from July onwards. It already has “strong liquidity”, it assured in its results, of EUR10.5 billion (USD12.7 billion), aided recently by a new three-year USD1.755 billion secured revolving credit facility, which remains undrawn. IAG said in an earlier May 11 filing that its convertible bond would be worth EUR800 million (USD966 million), but strong demand for the offering meant it could raise this to EUR825 million. The senior unsecured bonds, convertible into IAG shares, are due in 2028. The net proceeds from the offering will be used to strengthen the group’s finances and also to “provide the group with increased operational and strategic flexibility to take advantage of a recovery in demand.” The bonds will carry a fixed rate of interest of 1.125% payable semi-annually in arrears, and the conversion price has been set at EUR3.3694 (USD4.08) per share, which represents a premium of 45%. Like other airlines and travel companies, IAG was disappointed by the United Kingdom’s cautious reopening of travel announced a few days ago, which left its big markets of Spain and the United States off a list of low-risk destinations. During his press conference, Gallego urged the British government to open travel corridors with other countries with high vaccination rates, such as the United States.