The Webjet Limited (ASX: WEB) share price is going to be on watch today after announcing it’s restructuring its debt.
What is Webjet doing?
Webjet announced that it’s launching an offering of $250 million of convertible notes due 2026. Convertible notes are sort of like bonds, except they can be converted into normal shares during the relevant offer period.
The notes are convertible at any time on or after the 41st day after the settlement date until 10 business days prior to the final maturity date.
The coupon rate, or the interest rate, is 0.50% to 1% per annum, payable on a semi-annual basis. The conversion premium is 20% to 25% over the reference share price.
Webjet said that it’s trying to maintain a prudent capital structure that also maximises financial flexibility.
What will the new notes do for the company?
Webjet explained that the new notes will allow the company to proactively de-risk the financing of its current AU$130 million term debt which is due in November 2022, have a materially lower cash interest cost than the current financing arrangements and provide Webjet with the ability to “pursue strategic opportunities.”
As a result of the offering, Webjet’s lenders have extended half of the remaining term debt to November 2023 whilst also agreeing to reduce the minimum liquidity requirement from AU$125 million to AU$100 million.
Management comments
Webjet Managing Director John Guscic said: “As we enter the recovery phase of the global pandemic, we remain focused on ensuring Webjet is well placed to capture the significant global business to business market opportunity and accelerate bookings growth in our B2C [business to consumer] businesses.
“We are taking advantage of market conditions to proactively manage our balance sheet and the existing term debt. The offering also provides flexibility to pursue leadership in all our businesses. In particular, it places Webjet in a strategically advantaged position in the context of a highly fragmented B2B whole bedbank industry, which we believe will change significantly as a result of the pandemic. The Webjet OTA has already seen meaningful market share growth as Australian domestic travel markets start to return and the offering will provide flexibility to further capture demand as bookings continue to shift online.”
Summary thoughts about Webjet’s move
This seems like a smart move by Webjet. Keeping the balance sheet strong and manageable during this period of uncertainty is essential until travel resumes at a much stronger level.
If Webjet does go for an acquisition, it could be a very interesting move considering the travel market is still in a fairly weak position.
Is Webjet an opportunity? If travel returns to 2019 levels in 2022 then it could be a good idea. But there could more turbulence in the coming months.
