Exclusive-Latvia's airBaltic seeks new financing from bondholders as debt woes worsen
airBaltic's Financial Struggles and Search for Interim Financing
By Alessandro Parodi
July 15 (Reuters) - Latvia's airBaltic will seek short-term financing from bondholders at an August 3 meeting, according to a company notice seen by Reuters, as the state-backed airline races to stabilise its finances and avert the risk of default.
Interim Financing Plans
The carrier, backed by Germany's Lufthansa, is seeking "interim financing" while it reviews its capital structure, the previously unreported notice sent to bondholders shows.
"In order to ensure that the Group has a stable platform while this process is undertaken, the Issuer intends to seek interim financing to ensure it has sufficient liquidity going forward while it conducts the Review," the notice read.
"Each Bondholder shall have the opportunity to participate in the Interim Financing."
The notice did not specify how much funding the airline intends to raise. AirBaltic did not immediately respond to a request for comment.
Rising Costs and Structural Issues
AirBaltic's financial strains highlight how rising costs since the start of the Iran war in late February have exposed structural issues at some airlines, fuelling investor concerns about their ability to meet debt obligations.
Fleet Expansion and Delays
The carrier, which operates a fleet of 55 Airbus A220-300 aircraft and aims to almost double that number by 2030, has repeatedly postponed plans for a stock market listing because of engine delivery delays that have grounded many of its planes.
Bond Yield Increases
The yield on AirBaltic's €380 million 2029 bond has risen sharply since March, LSEG data shows, reflecting higher perceived risk.
Default Risks and Government Stance
Government Support Conditions
DEFAULT RISKS
Latvian Prime Minister Andris Kulbergs told journalists last week that the government could not continue to support airBaltic unless the company presented a clear strategy for its future.
"There needs to be a strategic commercial investor who also takes an active stake in the company," Kulbergs said.
Outstanding Loans and Missed Payments
The airline has yet to repay a €30 million ($34 million) short-term loan from the Latvian government due in August and failed in June to replenish a reserve account required under its 2029 senior secured notes, Fitch Ratings said last week.
Future Cash Flow Challenges
It will need to make up for a free cash outflow of €156 million in 2026 to be able to continue as planned, Fitch Ratings corporate ratings director Raman Singla told Reuters.
Unsustainable Capital Structure
Singla said airBaltic's capital structure, which involves leased aircraft and the "very expensive bond" due 2029, "is not sustainable in our view. So, they really would need to find some form of fix".
Credit Ratings and Recovery Prospects
Fitch has placed airBaltic's long-term issuer default rating of "CCC-" on Rating Watch Negative. It said the bond carries a recovery rating of "RR4", indicating investors could recover 31% to 50% of principal in the event of a default.
The rating agency may further cut airBaltic's rating to C if bondholders agree to worse terms, Singla added.
"Once they receive the consent from bondholders, that's when we'll have to reconsider, including details from the yet to be announced 'Interim Financing'," he said.
Additional Information
($1 = 0.8759 euros)
(Reporting by Alessandro Parodi in Gdansk. Additional reporting by Tim Hepher in Paris, Joanna Plucinska in London and Janis Laizans in Tallin. Editing by Adam Jourdan and Mark Potter)
