SOVEREIGN DEBT RESTRUCTURING | MASTERCLASS

A deep dive masterclass on sovereign debt restructuring, to be conducted virtually by Asian high yield bond expert Florian Schmidt.

30 June 2022 (Thu), 5pm Singapore/HK time

The troubled Air France-KLM (AFKLM) group announced a recapitalization plan on April 6. To help the airline group recover, the French government will pump €4bn into the airline as revealed in a joint statement by the French Minister of Economy and Finance and Netherlands Minister of Finance. Last year, both France and Netherlands had provided liquidity of ~€10.4bn ($12.35bn) to the respective airlines Air France and KLM that resulted in each government owning ~14% stake in AFKLM. This consisted of a €3bn ($3.56bn) loan from France and €7.4bn ($8.78bn) in loans guaranteed by the two governments. The two airlines have resorted to significant restructuring measures since then. The French government will support the group by converting the €3bn ($3.56bn) loan it provided to the group last year into perpetual hybrid debt and will also help it raise another €1bn ($1.19bn). This will result in its stake increasing to 29.9% from 14.3%. The Dutch government on the other hand will not be participating in the fresh capital raise and will continue discussions with European Commission to strengthen KLM. France seeks to exit within 12 months after the grant of the aid unless the aid amount reduces below 25% of the equity. Further, Air France will also be barred from paying dividends or making share buybacks and limits will be put in place on employee salaries and bonuses. AFKLM was formed through the merger of Air France and KLM in 2004 and has been on the receiving end of the impact of the pandemic slowdown, which has already led to a €7.1bn ($8.43bn) in net losses in 2020. Air France has a cash burn of €10mn ($11.87mn) a day and the group is likely to suffer a further loss of €1.3bn ($1.54bn) in the first quarter.
AFKLMs 1.875% 2025s were up 0.36 to trade at 94.03 cents on the dollar.
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