Norwegian’s creditors are set to take a significant haircut on their debts under a capital-raising exercise the carrier is planning under its restructuring processes.

In a 19 February stock-exchange filing, the Scandinavian low-cost carrier says it intends to issue NKr1.88 billion ($221 million) of perpetual subordinated convertible bonds and retained claims bonds to creditors.

The perpetual bonds will bear an interest rate of six-month Norwegian Inter Bank Offered Rate plus 250 basis points in the first year of issuance, rising to 350bps in the second and third years, 500bps in years four and five, 700bps in years six and seven, and 950bps from year eight.

DNB Bank has been appointed as global co-ordinator in respect of the issuance of the financial instruments in connection with the capital raise.

Norwegian is also proposing that each creditors be given a debt claim with a nominal value equal to 4% of their unsecured claim. This debt claim on aggregate would, under “certain terms and conditions”, be convertible into shares representing approximately 25% of the airline’s share capital following the restructuring and the proposed capital raise.

New investors in the capital raise, by investing in equity and a perpetual hybrid instrument, would receive approximately 70% of the post-restructuring share capital, and current shareholders approximately 5%. Existing creditors will be offered the opportunity to participate in the planned capital raise via zero-coupon bonds.

737 Max Norwegian

Source: Dzerkach Viktar/Shutterstock

Norwegian says it is also exploring the possibility – with examiner Kieran Wallace of KPMG and its restructuring representative in Norway, Havard Wiker – of also offering a cash component alongside the dividend claims.

However, it notes that amount of cash that could be used for such a dividend will be reduced depending on the duration of the restructuring, including any appeal process. Norwegian is seeking to commence the capital raise in late March/early April, with the subscription period in mid-April and target closing by the end of April.

Norwegian in mid-January released details of how it plans to exit examinership. To kick-start its transformation, the company is aiming to reduce its debt to around NKr20 billion and to raise around NKr4-5 billion using the combination of a rights issue to shareholders, a hybrid instrument, and a private placement, something it says it has attracted “concrete interest”.

The low-cost carrier entered examinership in Ireland in November and in Norway a month later after the Norwegian government decided not to provide further financial support.

However, on 21 January the government said it was more inclined to support the airline’s refinancing, noting that its planned capital raise and business plan seemed more robust than the one it had declined in October.

The government has set a number of conditions to participate in the airline’s capital raising, specifically that it must raise at least NKr4.5 billion, mainly from institutional and strategic investors; that participation in a hybrid loan must take place on “market terms”; and that the company finally receive approval of an overall restructuring plan.