[Update 3 Oct 2016] Qantas has added to its debt issue with a further $175m October 2026 bonds at Swap + 280bps. The final price for the 7 year bonds was Swap + 265bps. The company has said the funds will be used to refinance short term debt.
[Original story] Qantas flagged its intention to raise capital in mid-September when it carried out a series of investor briefings. Investor briefings are usually a prelude to some sort of capital raising although the gap between the briefings and any such transaction can be anywhere from a week to many months. In this case Qantas has moved quickly and the company has now announced it will go ahead with the issue of a new series of bonds which have a fixed rate of interest and a maturity date in 7 years.
Qantas last issued bonds in December 2014 when it sold $400 million 7.75% May 2022s at Swap + 400bps. The company was rated BB+/Ba1 at the time which is deemed to be sub-investment grade. Qantas’ current credit rating has improved and is now is BBB-/Baa3, the lowest rung of the investment grade scale after a strong operating performance in the past 15-18 months.
Not only has Qantas’ business performance improved but corporate spreads over bonds have contracted since its last bond issue. The latest debt pricing is indicated to be around Swap + 270bps, or around 4.70% total yield thus lowering the company’s debt funding margin by a substantial amount. Managers to the issue are ANZ, Deutsche Bank and HSBC.
Debt Maturity Profile as at 30 June 2016 ($m)