Southwest Airline (LCV) said it priced its public offering of $ 1.8 billion of two-tranche debt.
The US carrier will offer to sell $ 500 million in total principal of 4.750% notes due 2023 and $ 1.3 billion in total principal of 5.125% notes due 2027. The 2027 notes will be issued at face value .
Southwest Airlines said it plans to use the net proceeds of the offering to repay all of its outstanding debt under its 364-day credit agreement and for general corporate purposes. Upon repayment, he will terminate the credit agreement. The offer is expected to close by June 8, 2020, subject to customary closing conditions.
The U.S. carrier added that the 2023 bonds are being offered as an additional issue of its 4.750% tickets due 2023, which it sold for a total of $ 750 million on May 4. The Notes are of the same class as the original Notes of this series and have identical terms, other than the date of issue and the issue price.
Strict travel restrictions linked to the coronavirus pandemic have nearly halted travel demand, halving the value of Southwest Airlines shares this year. U.S. airlines spent billions of dollars in the first quarter, recording huge losses and implementing cost-cutting plans, while taking steps to strengthen their cash reserves to cope with the financial fallout.
Over the past month, Southwest Airlines shares have seen some relief after reporting that in the month through May 18 they had positive net bookings reversing the net negative bookings trends that prevailed during the major part of March and April, where trip cancellations exceeded new passenger bookings.
In addition, Southwest Airlines expects average daily cash consumption in June to be less than $ 20 million, compared to average daily baseline spending of $ 30-35 million in the second quarter.
Last week, a five-star analyst Myles Walton at UBS upgraded its stock rating to a buy, saying the US carrier offers the “best risk / reward” for a recovery.
Meanwhile, the Cowen & Co. analyst Helene becker reiterated a buy note on the stocks, citing Southwest’s financial strength and focus on recreation.
Becker believes that in anticipation of a reopening of the aviation industry, consumers are more likely to take a short-haul domestic flight than to book a trip to Europe.
“The industry may still be able to recoup some of the summer season,” Becker said.
Overall, Wall Street analysts are cautiously bullish on the stock. The 13 analysts’ ratings are split between 9 buys and 4 takes, which corresponds to a moderate buy consensus. The average of $ 40.22 price target indicates a 10% upside potential for stocks over the next 12 months. (See the analysis of Southwest Airlines shares on TipRanks).
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