Wizz Air raises €500 million in bond sale; fast recovery expected

Wizz Air sold €500 million in three-year bonds at an interest rate of just 1.35 per cent on Wednesday.

The sale was oversubscribed with more than €2 billion in orders from investors. Wizz Air plans to raise €3 billion in its euro medium-term note programme, which has been rated ‘BBB-‘ by credit agency Fitch Ratings.  This is the same rating  as that of the company itself, according to Fitch.

BBB’ ratings indicate that expectations of default risk are currently low. The capacity for payment of financial commitments is considered adequate, but adverse business or economic conditions are more likely to impair this capacity, according to a note from Fitch.

The proceeds of the notes will be used for general financing purposes. The new bond issue will enhance Wizz Air’s solid liquidity in a period of severe stress for the company and the sector, driven by the pandemic.

Wizz Air had said earlier in January that it had a war chest of  €1.6 billion in cash, which means it could survive for two years even if all planes are grounded. The bond issues will further secure its cash position.

Fitch  expects Wizz Air’s recovery to be faster than that of the sector, as demonstrated in summer 2020, due to the company’s low-cost position, short-haul flights, flexibility in route management and favourable customer base, the note said. The company continues to target strong growth and we expect it to enhance its balance sheet in case of a substantial drop in available liquidity in the next six to 12 months.

Fitch did however indicate that the outlook is negative. “This reflects further downside risk to demand recovery and travel restrictions due to the coronavirus pandemic, which may delay the reduction of leverage to a level commensurate with the rating until after the fiscal year to end-March 2023. Recent positive news about vaccine development and roll-out along with pent-up leisure demand may drive a more robust rebound in 2H21,” the ratings agency forecast.