The placement of new airline obligations was closed on Friday. Interest was lower than expected and the company revised upwards the total amount of the operation.
TAP paid 5.75% to issue 375 million euros in bonds, determined the ECO from market sources. The operation to place new five-year bonds with institutional investors was closed on Friday and the airline intends to use the financial proceeds to refinance debt.
Initially, the indicative interest rate was higher – 5.875%, according to Bloomberg data cited by Jornal de Negócios -, but ended up falling with strong demand. The coupon stood at 5.625%, according to information later confirmed by the company in a statement to the Securities Market Commission (CMVM). It was also the interest of investors that led the company to revise upwards the amount of the issue, which was expected to reach 300 million euros.
This interest rate represents a premium of 5 percentage points over the five-year Portuguese public debt, whose bonds recorded a yield of -0.075% on Friday. The differential is explained by the high debt of TAP and the rating assigned to the operation.
The Portuguese airline contracted two financial rating agencies to evaluate it. Standard & Poor’s rated TAP’s debt issue “BB-“, while Moody’s rated it “B2”. These ratings correspond to speculative investment categories, i.e. “garbage”. They are situated respectively at three levels and five levels below the quality ratings.
On the other hand, TAP paid more in this issue dedicated to institutional investors than the interest of 4.375% it paid to retail in mid-June, when it issued 200 million euros in debt with a maturity of four years. In other words, shorter.
The company led by Antonoaldo Neves had announced in the initial prospectus that the main goal of the operation is “to anticipate the repayment of certain loans under TAP’s existing liabilities and to extend the respective average maturity period”.
The airline wants to reduce its dependence on banks, to which it owes 651.8 million euros, of which 176.3 million reach maturity in less than a year. On the one hand, the investors have fewer requirements (in particular as regards State guarantees) and, on the other hand, it allows the average maturity of the debt to be extended. The issuance of five-year securities will have an impact on the average maturity of the debt, which currently stands at four years (compared to less than 24 months at the time of privatisation in 2015).
Morgan Stanley, Citi and JPMorgan were the banks responsible for the operation.