Air Canada Plans Bond Redemptions, Refinancing to Cut Debt Load

  • Company will redeem U.S. and Canadian dollar 2019, 2020 notes
  • Airline recalibrates finances as competition intensifies

Air Canada plans to ease its debt load and push back maturities to cut costs as the airline industry wrestles with overcapacity and weak fares.

The airline intends to redeem $700 million of U.S. dollar first- and second-lien bonds maturing in 2019 and 2020, as well as C$300 million ($233 million) of Canadian dollar bonds maturing in 2019, Air Canada said in a statement Tuesday. The arrangement includes plans to refinance its existing senior secured credit facility as well as the notes, the Montreal-based company said.

Air Canada is in the midst of a plan to trim its key cost ratio by about 21 percent by 2018. To get there, the carrier is cramming more passengers on long-haul aircraft, expanding the low-cost Rouge leisure unit and adding fuel-efficient jets such as Boeing Co.’s 787 Dreamliner.

Airfares are under pressure as U.S. airlines add capacity, with Air Canada’s yields on trans-Atlantic routes falling 9.6 percent in the second quarter, according to Bloomberg Intelligence data.

Air Canada plans to redeem the U.S. dollar first-lien notes at an average weighted price of 103.34 cents on the dollar and the Canadian dollar notes at 103.73, the company said. The second-lien notes will be redeemed at 100 percent of the principal amount plus interest.

The company had C$6.4 billion in long-term debt and finance leases as of June 30, according to second-quarter results.