This event will mark the largest corporate bond issue in the history of the country.
airBaltic Airbus A220-300 at Riga Airport (Photo: airBaltic)
Last week airBaltic reached an important milestone on the path towards its IPO. The carrier reported pricing a EUR 340 million (USD $367,113,300) issue of 14.50% 5.25-year (five years and three months) senior secured bonds.
The company proudly announced that the demand for the bond exceeded the supply, ramping up an order book of EUR 800 million (USD $862 million). More than 100 global institutional investors from over 20 countries across 3 continents will contribute to the final allocation. The bond will play a vital role in the company’s near future as mentioned by the CEO, Martin Gauss:
“The successful placement of this bond serves to refinance our previously issued 200 million euro bond, demonstrating the trust investors have in airBaltic’s strategy. This refinancing will substantially boost the company’s liquidity and financial stability allowing us to continue our investments in expanding and modernizing our fleet. This marks a historic milestone for our airline.”
The interest rate on airBaltic’s corporate bond grew substantially from 6.75% on the previous bond to 14.5% this time around. This is a result of the global increase in the cost of capital and the risk premium for the region. In 2019 the European Central Bank interest rates had been hovering at a near-zero level for a decade. The ECB’s main refinancing rate is currently 4.50%.
On top of that, the Russian invasion of Ukraine posed a major geopolitical risk to the region. airBaltic stopped operating to both of the nations which, before the war, were major air traffic demand centers for the carrier.
The valuation of the previous airBaltic bond tells a story of two crises the company went through in the past years.
airBaltic’s 2019 bond valuation at the Frankfurt Stock Exchange (Source: TradingView.com)
Back in 2019, the carrier had just gone through a major turnaround in the mid-2010s. It took a new vector by changing its fleet from a bouquet of narrowbody types to a single-type fleet focusing on the Bombardier CS300, now operating as the Airbus A220. The bond issue was set to accelerate airBaltic’s fleet expansion.
Soon enough the first headwind came with the pandemic resulting in the carrier suspending all the flights. International air transportation in Europe came to a halt and the Baltic states are too small of markets to offer the potential for domestic connectivity. With such a hard impact on the company’s business, valuation of the corporate bonds plummeted as bankruptcy probability rose.
airBaltic’s network in 2024 (Source: flightconnections.com)
The carrier has made a swift recovery. With the Latvian government’s backing, it was clear already in 2021 that the national carrier is bound for success in the post-pandemic landscape. Unfortunately for airBaltic, a big portion of its business was oriented East, towards Russia and Ukraine. The second blow spurred another wave of worries about the company’s future.
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