Scandinavian airline, SAS, has reached an agreement in principle with investors to convert its existing debt into new debt or shares. Under the agreement, holders of existing SEK1.5bn ($172 million) subordinated perpetual floating rate notes will be converted into common shares in the company at 90% of par value and at a subscription price of SEK 1.16 per share. Bond holders of SEK2.25bn senior unsecured fixed rate notes will be converted into new commercial hybrid notes at 100% of par value, with a floating interest rate of 6M STIBOR plus an initial margin of 340 bps per annum, stepping up bi-annually (years 2&3: 440 bps per annum; years 4&5: 590 bps per annum; years 6&7: 1,090 bps per annum; years 8-10: 1,440 bps per annum; year 11+: 1,590 bps per annum).
The noteholders committee said that the proposal “preserves maximum value for the holders of the Bonds and the Existing Hybrid Notes whilst providing support to SAS at a difficult time for the industry due to COVID-19”.
This agreement is a major part of the airline’s recapitalisation plan is announced at the end of June. SAS remains in discussions with the governments of Sweden and Denmark (the company’s major shareholders) regarding the revised plan, which includes a proposal to increase the interest rate by 90 bps per annum for the new SEK6b state hybrid notes that SAS proposes to issue to the government shareholders. SAS says it will announce further information and the new timeline of the revised recapitalization plan, which is also subject to approval by the European commission under state aid rules, as soon as possible.
The airline warns that if the revised recapitalisation plan is not implemented and fails, “SAS will not be able to remedy the liquidity shortage and the negative equity caused by the COVID-19 outbreak, which could have a material adverse effect on the company’s financial condition. Should SAS as a result of such material adverse effect on its financial condition be forced to file for bankruptcy, it is likely that the holders of the Existing Hybrid Notes and the Bonds will not be able to recover any of their claims under the notes.”
In July, SAS capacity was down by 76% and total number of passengers were 75% lower compared to same period last year.
SAS continues to resume flights to its destinations as demand returns and travel restrictions are easing. Compared to June, the number of passengers increased by nearly 300 thousand but showed a decrease of 2.5 million compared to same period last year. SAS says that domestic routes are showing the strongest recovery, whereas demand for Intercontinental and European travel remains weak.
“We continue to note a slow recovery of demand, in line with our expectations. As demand slowly returns, we are pleased to gradually ramp up our operations while ensuring a safe travel experience for our customers and employees,” says Rickard Gustafson, CEO SAS.