British Airways owner International Consolidated Airlines Group (IAG) has launched a €1bn (£706m) convertible bond to help fund its acquisition of Aer Lingus.
The unsecured bond is split into two: a €500m offering redeemable in 2020, and €500m in 2022, and can be converted into ordinary shares priced at a premium.
The five-year bond will yield 0.25-0.75 per cent a year, and the seven-year bond has an annual yield of 0.635- 1.1.25 per cent. The bond can be converted to shares at a premium of 52.5-62.5 per cent.
The coupon price for convertible shares tends to be lower than for normal bonds, but offers equity at a premium for investors instead, without the volatility associated with buying shares instead of bonds.
IAG said the proceeds from the bond offering would be used “for general corporate purposes” including repaying the bridging loans raised for its Aer Lingus purchase.
This is IAG's second bond-issue in two years; the €390m five-year bond in 2013 – to fund its acquisition of Vueling – had a far higher yield of 1.75 per cent, but creditors received a far-lower premium in shares.
The company said the latest bond would not interfere with dividend payments and it remained committed to paying a “sustainable dividend.”
Bank of America Merrill Lynch, BNP Paribas and Deutsche Bank's London branch acted as joint global coordinators and joint bookrunners.
Barclays Bank, JP Morgan and UBS Limited are co-bookrunners.