Air France Seeks $710 Million in Sale of Convertible Bonds

Air France-KLM Group (AF), Europe’s largest airline, plans to raise as much as 550 million euros ($710 million ) in a sale of convertible bonds to help finance aircraft purchases and pay debt.

The company will sell 480 million euros of the securities maturing in 2023 that can later be handed in for stock and has given banks the option of buying a further 70 million euros of the bonds, it said in a statement today. The French government, which owns 15.9 percent of the company, will subscribe in line with its holding, Air France-KLM said.

“The proceeds of the issuance will be used for the group’s general corporate purposes, notably to finance its fleet and allow for the optimization of its debt repayment schedule,” the carrier said.

The bonds will pay annual interest based on a reference rate between nine- and 10-year euro swaps, implying a value of 1.55 percent to 1.68 percent, plus a premium of minus 0.02 percent to 0.73 percent. The bonds can be handed in for stock when the shares rise 30 percent to 35 percent from the current price. Final terms will be set March 25.

Air France-KLM said it has earmarked about 1.2 billion euros in investments for this year, and has debt of 1.3 billion euros coming due in 2013. The airline is expanding its wide-body fleet with the purchase of Boeing 787 Dreamliner aircraft and Airbus A350 jets.

Photographer: Balint Porneczi/Bloomberg

An Air France employee enters the company's office, part of the Air France-KLM Group at Toulouse-Blagnac airport in Toulouse, France. Close

An Air France employee enters the company's office, part of the Air France-KLM Group at... Read More

Close
Open
Photographer: Balint Porneczi/Bloomberg

An Air France employee enters the company's office, part of the Air France-KLM Group at Toulouse-Blagnac airport in Toulouse, France.

Uncertain 2013

The airline narrowed its loss last year after cutting jobs, and has said there’s no certainty that improvement will continue in 2013, which has weighed on the stock, making equity a less attractive option for raising capital.

Air France-KLM stock had gained 14 percent this year before today, after advancing 76 percent in 2012. International Consolidated Airlines Group SA (IAG), the parent of British Airways, has risen 45 percent this year, while Deutsche Lufthansa AG (LHA) has gained 15 percent in Frankfurt.

Air France-KLM rose as much as 2.1 percent to 8.13 euros today and was up 0.5 percent at 8 euros at 11:01 a.m. in Paris, while the benchmark CAC 40 Index (CAC) rose 0.4 percent.

The airline currently has two convertible bonds outstanding, issued in 2005 and 2009.

Coupon Rates

The airline issued 450 million euros in convertible bonds in April 2005, with a maturity date of April 1, 2020, paying a coupon of 2.75 percent annually. Of almost 22 million bonds issued, 597 had been converted as of June 2012, according to the company’s website.

The bonds issued in June 2009 with a maturity date of April 1, 2015, were for 661 million euros, with a coupon of 4.97 percent. As of June 2012, 8,927 of about 56 million bonds had been converted.

Global coordinators for the new bond are BNP Paribas and Societe Generale. Citigroup Global Markets Ltd. and Deutsche Bank AG are joint bookrunners and joint lead managers.

The bonds will be offered in a private placement today to institutional investors, with a public offering in France from today to 5 p.m. Paris time on March 22.

To contact the reporter on this story: Andrea Rothman in Toulouse at aerothman@bloomberg.net

To contact the editor responsible for this story: Benedikt Kammel at bkammel@bloomberg.net

Bloomberg reserves the right to remove comments but is under no obligation to do so, or to explain individual moderation decisions.

Please enable JavaScript to view the comments powered by Disqus.