easyJet PLC (LON:EZJ) said it has secured a £1.4bn five-year loan facility from a syndicate of banks to strengthen its balance sheet amid continued havoc in the air travel sector caused by the coronavirus (COVID-19) pandemic.
The FTSE 250 budget carrier said the loan is also supported by a partial guarantee from the UK government’s export finance body through its export development guarantee scheme (EDGS). The EDGS is for commercial loans that are available to qualifying UK companies and do not carry preferential rates or require state aid approval. The loans also contain some restrictive covenants around dividend payments, although easyJet said these are compatible with its existing policy.
The company said the facility will be secured on aircraft upon drawing and will “significantly extend and improve” its debt maturity profile and strengthen its balance sheet by increasing its liquidity levels.
easyJet added that over the first quarter of 2021 it will repay and cancel part of its shorter term debt, namely a fully drawn revolving credit facility of US$500mln (£370.4mln) and term loans of around £400mln, which it said will free up a number of aircraft assets to further strengthen its balance sheet.
The firm also said it will continue to review its liquidity position and will continue to “assess further funding opportunities, should the need arise”.
“This facility will significantly extend and improve easyJet’s debt maturity profile and increase the level of liquidity available. easyJet has taken swift and decisive action, having now secured more than £4.5bn in liquidity since the beginning of the pandemic”, easyJet chief executive Johan Lundgren said in a statement.
“The loan facility, provided on commercial terms, reflects constructive and collaborative work between easyJet, multiple banks and UK Export Finance. With our unmatched short haul network and trusted brand, easyJet is well positioned as customers return to the skies in 2021”, he added.
On Monday morning, AJ Bell’s Russ Mould said easyJet’s management and shareholders will be “very grateful” for the new loan facility, which he said will also supplement the £409mln the company raised itself through a share placing in June.
However, Mould also warned that while airline stocks have recovered somewhat from last year’s plunge, long term issues such as customers’ desire to fly and the effect of state-aid on a firm’s viability “have yet to be answered”.
“Investors tend to fight shy of industries where government cash is involved, or available in size if required, as it can mean money is allocated in ways that do not necessarily generate good returns on investment, as issues such as sovereignty or employment take precedence. Investors may therefore be enjoying the resurgence in airline stocks and a successful fight against COVID-19 could prolong that but at some stage shareholders will have to decide whether airlines are returning to type and becoming stocks to rent, during economic upturn, rather than companies to own across a full economic cycle because the industry’s long-term growth and dynamic justify such patient support”, he added.
Shares in easyJet were up 0.5% at 790.4p in late-morning trading.