Norwegian looking to convert US$4.3 billion debt into equity – most of fleet still grounded

In a bid to deal with the economic ramifications of the COVID-19 pandemic Norwegian, Europe’s third-largest low-cost carrier, is now looking to convert up to US$4.3 billion of debt into equity and will be issuing new shares in an attempt to stay afloat. The strategic move is in response to the requirements needed to meet the criteria in order to obtain a government loan of US$292 million by reducing the ratio of debt to equity.

Part of Norwegian’s problem has been the level of borrowing required to support its meteoric rise to the point where it is now the largest foreign carrier flying to New York and other major U.S. cities. By 2019, that level of debt stood at US$8 billion. By mid-March the low-cost carrier had laid off 7,300 of its employees – roughly 90% – after which it turned to the Norwegian government for financial help.  

“The proposed measures are necessary in securing the next tranches of the Norwegian government state guarantee program,” Chief Executive Jacob Schram said in a statement on Wednesday, adding that: “They are also necessary for the future of the company by strengthening the company’s balance sheet.”

The deal will require shareholder approval, scheduled for May 4, subject to approval from existing creditors. According to Norwegian, the carrier would convert part or all of its bonds worth NEK5.68 billion into shares as well as leasing debt of up to NEK38.82 billion. It would also look to raise at least NEK300 million of fresh cash by selling new shares, with the aim of reaching a total of 400 million to meet government terms for its aid. The share value of Norwegian has dropped 80% over the last two months and in order to qualify for a second tranche of NEK1.2 billion it will have to persuade creditors to temporarily forego payments while, according to the government, to access a final tranche of NEK1.5 billion, the carrier will have to raise additional equity. (US$1.00 = NEK10.22 at time of publication.)