Lufthansa issues bonds worth $ 1.9 billion
Announced on February 4, German airline Lufthansa issued a new round of bonds, this time for an amount of 1.6 billion euros ($ 1.96 billion). Seeking to increase its liquidity and remain solvent during this difficult time in the aviation industry, Lufthansa, like many other carriers around the world, has access to a variety of financial tools. Other fundraising strategies we’ve seen from airlines include accessing government loans and leasebacks of planes.
For those unfamiliar with financial terms, a bond is a form of borrowing money. Bonds of a given value are “issued” by the company and “bought” with the understanding that they will be repaid with interest on a fixed date.
Stay informed: Subscribe to our daily summary of aviation news.
According to Lufthansa, each bond was sold for € 100,000 and placed in two tranches with terms of four and seven years, respectively:
- The first tranche of four-year bonds matures on February 11, 2025 and has a volume of 750 million euros, bearing interest at 2.875% per annum.
- The seven-year tranche expires on February 11, 2028. These bonds have a volume of 850 million euros with an annual interest rate of 3.75%.
Development bank loan repaid with funds raised
The additional fundraising will lead to the repayment of a loan contracted with the German public development bank KfW as contractually agreed as part of the stabilization measures last June. In fact, Lufthansa’s € 1 billion loans to KfW will be repaid sooner than expected, freeing up the planes that were pledged for the loan in the first place.
Simple Flying had made inquiries with Lufthansa, seeking to know which aircraft had specifically been placed under warranty. However, at the time of publication, no response has been received.
Based on the long-term funds raised and € 2.1 billion of cash borrowed in the second half of 2020, Lufthansa has now secured the refinancing of all its financial liabilities of around € 2.6 billion due 2021 .
“We are very grateful for the support we are receiving in our home markets. Today’s successful bond placement allows us to repay the entire KfW loan. Refinancing even reduces our financing costs. Despite the refund, however, it is likely that we will pull additional items from the stabilization package that are currently unused. The extent of use will depend on the future development of the pandemic ”, -Remco Steenbergen, CFO of Deutsche Lufthansa AG.
Lufthansa’s cash flow situation now
The airline says that as of September 30, the Lufthansa Group as a whole had € 10.1 billion in cash and cash equivalents. This includes uncalled funds from stabilization plans in Germany, Switzerland, Austria and Belgium.
The Lufthansa group had drawn a little less than 3 billion euros from the 9 billion euros of government stabilization measures at its disposal. The airline group adds that it has even more funding available, noting that it has not yet drawn funds from WSF Silent Participation I (4.5 billion euros).
What do you think of the Lufthansa situation? Let us know in the comments.