Air France-KLM : New € 650m 5Y notes to refinance upcoming debt maturities

Air France-KLM was back into the bond market last week through the issuance of a € 650m (upsized from € 500m) 5Y bond priced at MS+150bps (i.e. a yield of 4.0%), which is below the price guidance (MS+155bps) and significantly tighter than the IPT (MS+190bps). Proceeds from the transaction will be used for general corporate purposes namely to refinance debt due in 2026. While the overall transaction is net leverage neutral, AF-KLM will see its annual interest payments reduce by c.€ 12m once the May-2026 bond is redeemed given the new bond’s lower coupon. As such, we estimate an interest coverage ratio of 5.41x once the bond is redeemed, up from our current estimates of 5.35x as of end-September. We expect further bond issuances throughout the year to refinance other debt due in 2026, notably the equity-linked instrument issued to Apollo.