British Airways owner IAG boosts liquidity with 825 mln euro convertible bond

British Airways-owner IAG said on Tuesday it would raise 825 million euros ($1 billion) from a convertible bond, the group’s latest move to strengthen its balance sheet as travel remains at very low levels during the pandemic.

IAG, which also owns Aer Lingus, Iberia and Vueling, has a weekly cash burn rate of 175 million euros while most of its fleet is grounded due to restrictions, meaning its focus over the past year has been on raising funds.

Forecasting a travel recovery from July, the group said last week that it had liquidity of 10.5 billion euros, helped recently by a new revolving credit facility and the deferral of some pension payments.

On Tuesday, it said its convertible bond issue would boost its liquidity by around 825 million euros. Strong demand for the offering meant it would raise more than the 800 million euros initially targeted for the senior unsecured bonds, which are convertible into IAG shares, and due in 2028.

The group’s shares were down 5.6% at 197 pence in afternoon trading, underperforming a 2% decline in London’s blue-chip share index (.FTSE).

IAG said the proceeds would strengthen its finances given continued uncertainty around the travel recovery, but could also be used to provide extra resources to take advantage of a recovery in demand.

“This is simply the next move for IAG to continue to bolster liquidity while the crisis drags on,” said Bernstein analyst Daniel Roeska.

IAG was left disappointed by Britain’s cautious reopening of travel last week, which left its big markets, Spain and the United States, off a list of low-risk destinations.

Announcing the final terms of the bonds, IAG said the bonds would carry a fixed rate of interest of 1.125% payable semi-annually in arrears and the conversion price of the bonds has been set at 3.3694 euros per share, a premium of 45% over the volume weighted average price of the shares in the period from launch to pricing, translated into euros.