Norwegian seeks to reconfigure debts to access government support

Norwegian has unveiled plans to strengthen its balance sheet by converting debt to equity in order to meet the requirements of the Norwegian state guarantee program.

The low-cost airline hopes to create a sustainable platform taking into account current shareholders and creditors alike. The company reported in February that it was targeting a net profit for 2020 after taking significant actions in 2019 to optimise the route network, cut costs and create financial headroom.

However, the guidance was withdrawn in a stock market notice on March 6th due to the drop in demand and government-imposed restrictions on travel following the Covid-19 outbreak. Norwegian has already enacted a number of measures to mitigate the substantial drop in revenues, including grounding the majority of the fleet temporarily.

Having already secured the first tranche of government support, the airline is now seeking to reconfigure its finances in order to access further support.

The board is proposing actions and implementations that aim to fulfil the requirements of the second and third tranches of the Norwegian government state guarantee program that will release NOK 3 billion in total funding.

The proposal aims to convert debt to equity by key stakeholders including aircraft lessors, bond holders, convertible bond holders, and suppliers through the following steps:

• Parts of the Norwegian group’s liabilities towards lessors, banks and other creditors to be converted to shares in the company.
• The use of other financial instruments to convert any relevant debt to equity or equity-like instruments.
• All or part of its bonds to be converted to shares in the company. A subsequent private placement against cash consideration with potential preferential treatment for the company’s current shareholders.

The debt conversions as well as the new equity, which again will release liquidity provided under the government guarantee program, ensure that the company can sustain the current Covid-19 environment and prepare for Norwegian to gradually re-open its route network and bring back furloughed employees.

“The proposed measures are necessary in securing the next tranches of the Norwegian government state guarantee program that will release NOK 3 billion.

“They are also necessary for the future of the company by strengthening the company’s balance sheet,” said chief executive, Jacob Schram, of Norwegian.

“We will over the next weeks engage in dialogue with the bond holders, lessors and other creditors, with the intent of converting substantial debt to equity.

“This will create a platform which will enable Norwegian to return to the skies as an even better and stronger company to the benefit of the travelling public, our dedicated colleagues and current shareholders,” he added.

An extraordinary general meeting will be held on May 4th to discuss the measures.