Air France-KLM : Back into the HY market

Air France-KLM was back into the bond market last week through the issuance of a € 500m 5Y bond priced at MS+155bps (i.e. a yield of 3.85%), which is at the lower end of the price guidance (MS+155-160bps) and tighter than the IPT (MS+190bps). Proceeds from the transaction will be used for general corporate purposes, with no further information provided. We understand that this will be used to refinance upcoming debt including the CB/Perpetual (if not converted) or the 2026 maturities. The timing, in our opinion, reflects the group’s anticipation of potential political volatility in France, which could have a negative impact on the rates asked by the overall market for new debt. On a positive side, and unrelated to the outcome, a conversion of the CB/Perpetual or its redemption through the proceeds of the new bond issuance will result in an improvement in the ICR as the CB/Perpetual carries a coupon of 6.5%, much higher than the new bond.