Lufthansa issues €600mn bonds, saves €200mn in staff costs

Lufthansa (LH, Frankfurt Int’l) launched an offering of senior unsecured convertible bonds on November 10 for EUR525 million euros (USD618 million) due in November 2025, before raising it to EUR600 million (USD706 million) later in the day due to high demand and altering the conditions in its favour. The bonds, which have a denomination of EUR100,000 (USD118,000) each, have a coupon rate that Lufthansa lowered from between 2.25% and 2.75% per annum to between 2% and 2.25%, payable semi-annually in arrears. The transaction, it said, was more than six times oversubscribed. “The company thereby further strengthens its liquidity,” it declared in the statement announcing the bonds, adding that it plans to use the proceeds for general corporate purposes. The bonds will be convertible into new or existing shares. Lufthansa also adjusted the initial conversion price, from between 30% and 35% above the reference share price to 40%. The company claimed it still had EUR10.1 billion (USD11.9 billion) in cash at its disposal as of September 30, including the stabilisation measures that have been put in place in Germany, Switzerland, Austria, and Belgium which have not yet been utilised. “The transaction proves that Lufthansa still has access to attractive financing despite the corona pandemic and highlights the trust in Lufthansa as a borrower and the group’s good international reputation,” said Wilken Bormann, the company’s executive vice president for finance. The following day, on November 11, Lufthansa announced it had reached further “crisis-management measures” by cutting a deal with Germany’s second-largest trade union, ver.di. The agreement will reduce costs by a further EUR200 million (USD236 million), in return for making no compulsory redundancies in 2021. In addition to ongoing “short-time work” – for which German employers receive funds from the Federal Employment Agency (Bundesagentur für Arbeit) – Lufthansa’s 24,000 ground staff agreed to forgo their usual Christmas and holiday bonuses for 2020 and 2021. The company will also cut the amount it pays to top up government payments to staff working short-time.