Qantas can switch off interest at any time
A report in The Sydney Morning Herald today says that Qantas will be able to switch off interest payments at any time and without immediate penalty on the massive $10 billion of debt being raised by the private equity consortium to buy the airline and fund its future activities.
The complex lending package, for which global marketing will begin this week after the Federal Government removed the last political hurdle from the takeover, will allow the airline to add the repayments to its initial loan, without repaying a dollar, for a period of up to 10 years if necessary, giving a very strong indication of the vast profits to be made by the APA consortium and investors from this deal.
With the suspension clause designed to give the company’s management a degree of breathing space if Qantas encounters a severe financial downturn similar to the 9/11 terrorist attack or the SARs virus epidemic in Asia, which badly mauled the aviation industry, Qantas will only have to give notice to lenders that it is suspending interest payments rather than obtain their permission.
These repayments will then be added to the main debt in the form of bonds and while the 10-year period will be the maximum, it is not expected Qantas and its proposed private equity owner, Airline Partners Australia, will use such a time scale, given the relatively short space of time historically it has taken the industry to recover from such disruptive events.
The flexibility over interest payments is a major component of a funding deal described by its architects as “covenant lite”, whereby the new owner of Qantas has used its negotiating clout to achieve fewer financial constraints over how the money should be re-paid and when.
Marketing of the debt package will be significantly stepped up by the six major lead underwriters, the fund raising consisting of the $7.6 billion to fund the initial acquisition through the current $5.60 a share offer which is due to close on April 3 and debt facilities worth another $2.4 billion being raised to provide working capital and capital expenditure.
Australian retail investors may participate in the fund-raising with the planned issue of $500 million in subordinated notes, which parcels debt into a listed note.
A report by The Mole from The Sydney Morning Herald
John Alwyn-Jones
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