Announced on February 4th, German carrier Lufthansa has issued another round of bonds- this time, to the tune of €1.6 billion ($1.96 billion). Looking to boost its cash liquidity and stay solvent during this period of difficulty in the aviation industry, Lufthansa, like many other carriers around the world, has been accessing a variety of financial tools. Other cash-raising strategies we’ve seen from other airlines include accessing government loans and the sale-and-leaseback of aircraft.
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 ‘purchased’ with the understanding that they will be repaid with interest at a fixed date.
According to Lufthansa, each bond was sold at a price of €100,000 and placed in two tranches with a term of four and seven years, respectively:
- The first tranche of bonds with the four-year-term is due on February 11th, 2025, and has a volume of €750 million, bearing interest of 2.875% per year.
- The tranche with a seven-year-term comes due on February 11th, 2028. These bonds have a volume of €850 million with an annual interest rate of 3.75%.
Development bank loan repaid with raised funds
The raising of additional funds will lead to the repayment of a loan taken from German state-owned development bank KfW as contractually agreed as part of stabilization measures last June. In fact, Lufthansa’s €1 billion in loans from KfW will be repaid ahead of schedule, freeing up the aircraft that were put up as collateral for the loan in the first place.
Simple Flying had inquired with Lufthansa, looking to find out which aircraft had specifically been put up for collateral. However, at the time of publication, no response was received.
Based on the long-term funds raised and €2.1 billion in borrowed cash in the second half of 2020, Lufthansa has now secured the refinancing of all financial liabilities of around €2.6 billion due in 2021.
“We are very grateful for the support we receive in our home markets. Today’s successful bond placement allows us to repay the entire KfW loan. The refinancing even lowers our financing costs. Despite the repayment, however, it is likely that we will draw additional elements of the stabilization package which are currently unused. The extent of the utilization will depend on the further course of the pandemic,” -Remco Steenbergen, Chief Financial Officer of Deutsche Lufthansa AG.
Lufthansa’s cash situation now
The airline says that as of September 30th, the Lufthansa Group as a whole had cash and cash equivalents of €10.1 billion. This includes uncalled funds from the stabilization packages in Germany, Switzerland, Austria, and Belgium.
Lufthansa Group had drawn just under €3 billion of the €9 billion in government stabilization measures available to it. The airline group adds that it has even more funding available, noting that it has not yet drawn down funds from the WSF Silent Participation I (€4.5 billion).
What do you think of Lufthansa’s situation? Let us know in the comments.