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Qantas Airways Offers First Junk-Rated Bonds in Australia

An aircraft operated by Qantas Airways Ltd. stands behind a fence at Sydney Airport in Sydney. Photographer: Brendon Thorne/Bloomberg
An aircraft operated by Qantas Airways Ltd. stands behind a fence at Sydney Airport in Sydney. Photographer: Brendon Thorne/Bloomberg

May 12 (Bloomberg) -- Qantas Airways Ltd. became the first junk-rated issuer to sell senior unsecured bonds in Australia, raising A$300 million ($281 million) via eight-year notes today.

The nation’s largest airline, which was stripped of its investment-grade rating amid losses, hired Deutsche Bank AG to arrange the sale, according to an e-mailed statement from the German lender. The 7.75 percent fixed-rate securities were priced to yield 400 basis points more than the swap rate, according to a regulatory statement from Qantas.

Qantas’s May 2022 note issue comes as it seeks to cut costs and increase cash amid a price war with Virgin Australia Holdings Ltd. It’s cutting 5,000 jobs and also weighing whether to sell a stake in its Frequent Flyer loyalty business. While unrated corporate issuers have sold high-yield debt in Australia before, Qantas’s transaction is the first senior unsecured issue from a company with a speculative-grade rating, data compiled by Bloomberg show.

Standard & Poor’s lowered Qantas’s senior unsecured debt issue rating in December to BB+, one level below investment grade, from BBB-. Moody’s Investors Service downgraded the carrier’s senior unsecured rating by two steps in January to Ba2, the second-highest junk-bond grade. Both have a negative outlook on the airline.

Bond Risk

Sydney-based Qantas has A$250 million of local-currency bonds outstanding which were sold in April and May last year before it had its investment-grade ratings removed. The 2020 notes yielded 323 basis points more than the swap rate as of 6:47 p.m. in Sydney, according to Bloomberg-compiled prices. They were priced at a 295 basis-point gap when first issued.

The cost of insuring Qantas’s debt against non-payment using credit-default swaps has also risen, touching 316.5 basis points on May 9 compared with 165 basis points a year earlier, according to CMA data.

Today’s transaction won’t affect the company’s overall debt position, Qantas said in a regulatory statement. Proceeds will be used to buy back $126 million of Qantas’s 6.05 percent notes due April 2016 from one investor and to repay other shorter term debt maturities, according to the statement.

To contact the reporter on this story: Benjamin Purvis in Sydney at bpurvis@bloomberg.net

To contact the editors responsible for this story: Katrina Nicholas at knicholas2@bloomberg.net Ken McCallum

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