Ryanair bond sale as airline credit ratings fall, debt costs rise

In spite of the pandemic's devastating impact on aviation, Ryanair's recent EUR850 million bond issue was more than five times oversubscribed. It was the first straight bond sale by a major European airline during the crisis.

With interest rates at historic lows, investors were attracted by the 2.875% coupon, backed by Ryanair's strong balance sheet. Unlike many airlines, Ryanair does not need crisis funds, but this will facilitate repayment of existing bonds maturing in 2021.

Ryanair also raised EUR400 million of new equity earlier in Sep-2020. This was only 3.2% of its share capital, but equity investor support probably smoothed the way for its bond issue and helped to preserve its credit rating.

Only seven airline groups have credit rated as investment grade by the ratings agencies S&P and/or Moody's, while 23 airlines have junk bond status. Ryanair is highest rated among European airlines and second globally after Southwest Airlines.

All airline credit ratings have suffered in the crisis (the median airline's credit is now deemed 'highly speculative'), raising the cost of borrowing when debt is increasing. Debt capital has given airlines survival funds, but new equity will need to be part of the longer term solution.