Ryanair Boeing 737-8AS reg. 9H-QBL taking off from Naples International Airport (NAP). Photo: Marco Macca - @aviator_ita

LONDON – Low-cost carrier Ryanair (FR) has sold a US$1bn (EUR850m) bond. This makes it the first bond the airline has sold in three years and is a sign that European debt markets are starting to reopen to airlines that were crippled by the COVID-19 pandemic.

The airline’s sale of the bond is its second one in Europe since the COVID-19 pandemic. It comes after majority-state-owned airline Finnair (AY) issued a hybrid bond that combined debt and equity features.

A lead manager memo seen by Reuters showed that investors put in US$5.2bn (€4.4bn) of orders for the bond, which was more than five times the amount FR was seeking to raise.

Ryanair Boeing 737-8AS at Naples International Airport (NAP). Photo: ©Marco Macca – @aviator_ita

A Strong Balance Sheet

The airline’s balance sheet is said to be one of the strongest in the industry. Analyses show FR has more than US$4.6bn (€3.9bn) in cash by June 30 and aircraft with an approximate value of US$8.25bn (€7bn). The airline also raised US$471m (€400m) from shareholders last week.

Azhar Hussain, head of global credit at Royal London Asset Management said, “Ryanair is in a better place; therefore, it’s going to be easier for it to get the financing it wants.” FR, along with easyJet (U2) and Southwest Airlines (WN) still hold investment-grade ratings, ratings agency S&P said in August, whilst noting all three are low-cost carriers.

Many airlines, such as Lufthansa (LH) and British Airways (BA) owner International Airlines Group (IAG) have seen their credit ratings cut to “junk” status during the Coronavirus pandemic.

Photo: Adrian Pingstone

One of the Financially Strongest Airlines

Ratings Agency S&P has also said that it considers FR to be one of the financially strongest airlines as it removed its ‘BBB’ rating (two ratings above “junk”) from ‘credit watch’ on Monday. The new rating makes an imminent downgrade less likely.

Ryanair’s bond, which is currently pricing at a yield of 3%, will pay a coupon of 2.875%, according to the lead manager. Despite being more than double what the airline paid for longer debt in 2017, it is a fraction of the yields its bonds hit in March (12%).

(Credits: Fabrizio Berni)

Lagging Behind

Despite slowly picking up, bond issuance by European airlines has lagged the United States. Companies including Delta Air Lines (DL) and American Airlines (AA) have raised at least US$36bn since March, according to ABN AMRO data. However, many have had to offer investors security over their assets.

ABN AMRO fixed income strategist Daniel Ender Aizencang said, “To me [Ryanair] says that the door is wide open for deals.”

Despite this, European borrowing costs still remain elevated compared to pre-COVID-19 levels. IAG agreed on a rights issue today after being told by bankers that a debt and convertible issue considered in July would now be too expensive.

Ryanair will use part of the proceed to refinance a US$1bn (€850m) bond that is due in June 2021, according to a banker who worked on the deal.

Ryanair Boeing 737-8AS reg. 9H-QBL taking off from Naples International Airport (NAP). Photo: Marco Macca – @aviator_ita