Wizz Air’s first bond takes off as a sign of hot debt markets
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Low-cost airline Wizz Air is expected to pay borrowing costs of just over 1% on its first bond, highlighting how vibrant credit markets remain in the face of new bottlenecks and the spread of a new virus variant in Europe.
The London-listed Hungarian carrier followed a series of European companies that issued debt at low interest rates in the first two weeks of 2021, underscoring investor confidence in the ability of central banks to mitigate prolonged economic fallout from the coronavirus crisis.
Wizz Air’s three-year deal shows how fund managers are increasingly willing to buy bonds from even the most struggling sectors such as the airline industry, where activity has almost come to a standstill for most of the year, looking for any kind of return. In December 2020, 665,722 passengers traveled with Wizz Air, an 80% drop from the same month in 2019, according to company figures.
The European corporate bond market had a frenetic start to the year, with investment grade companies at the top of the rating scale borrowing at historically low yields from cash-strapped investors . German energy company Eon raised 600 million euros at a 0.1% coupon earlier this week, while Swiss engineering group ABB was able to borrow 800 million euros without interest payments.
“Available funding costs have never been higher,” said Mark Lynagh, co-head of Emea debt markets at BNP Paribas.
Wizz Air sold 500 million euros of three-year bonds at an interest rate of just 1.35% on Wednesday, after receiving more than 2 billion euros in orders from investors. The low-cost airline has investment grade credit ratings at the lowest level, with a “negative” outlook from Moody’s and Fitch indicating that it could switch to junk status in the near future.
“[The volume of demand] shows how much money is available and that investors want to put it in something with a little bit of [yield]”said Matt Thomas, head of UK corporate debt capital markets at Barclays, who worked on the deal. He added that Wizz Air has a high quality track record and has” been through an incredibly tough 2020. “.
“For so many transactions, the [order] the pounds are huge, ”said a UK-based fund manager. “People have to buy [corporate debt] and they are nervous to do it.
Wizz Air plans capitalize on the collapse of air transport by expanding its bases in Europe while struggling rivals retreat. A debt fund manager said the carrier has followed rival Ryanair’s model of keeping both costs and ticket prices low.
“This is the first part of the airline segment that is going to really bounce back,” he said, adding that Wizz Air has proven its “ability to change routes very quickly when there is a small opening in the airways. blockages “.
Ryanair, the largest low cost airline in Europe, raised 850 million euros in September with a yield of 3 percent.
The latest round of nationwide travel blockages and restrictions in Europe have dealt another blow to an already struggling travel industry.
Despite blockages and travel restrictions in much of Europe, central bank actions and vaccine deployments have lowered European corporate bond yields to pre-Covid levels as investors look to reopen savings.
The ICE BofA index of corporate bonds rated triple B traded in euros, excluding financial groups, returns 0.38% against a peak of over 2% during the peak of market turbulence in March.
Another debt fund manager said that although corporate credit yields have fallen, “there is no way you can get income.”