Norwegian Air seeks $4.3 billion debt-for-equity deal as crisis deepens

By Terje Solsvik and Victoria Klesty

OSLO (Reuters) - Norwegian Air <NWC.OL> plans to convert up to $4.3 billion of its debt into equity and to issue new shares as it seeks to stay in business following the COVID-19 outbreak that has grounded almost all of its fleet, the budget carrier said on Wednesday.

The move would allow the airline to tap government guarantees of up to 3 billion Norwegian crowns ($292 million), which are dependent on the company reducing its ratio of debt to equity.

Growing rapidly in the last decade to become Europe's third-largest low-cost airline and the biggest foreign carrier serving New York and other major U.S. cities, Norwegian had accumulated debts and liabilities of close to $8 billion by the end of 2019.

On March 16, the company announced temporary layoffs of 7,300 employees, about 90% of its workforce, and the following day called on Norway's government for help, saying it needed cash "within weeks, not months".

"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, announcing the measures on the eve of Norway's Easter break.

"They are also necessary for the future of the company by strengthening the company's balance sheet," added Schram, who joined the airline only last year, adding work had begun on building the future "New Norwegian".

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The company must convince its creditors to agree to the plan before it is put to a shareholders' vote on May 4.

If approved, Norwegian would convert part or all of its bonds worth 5.68 billion crowns into shares as well as leasing debt of up to 38.82 billion crowns, the company said.

It would also aim to raise at least 300 million crowns of fresh cash by selling new shares, with the aim of reaching a total of 400 million to meet government terms for its aid.

Those deals are far in excess of the company's market capitalisation of 1.4 billion crowns and will significantly dilute existing equity.

Asset manager Sissener AS, which holds bonds in Norwegian with a nominal value of $5 million, but also shorted some stock, said creditors may have few options but to accept the proposal.

Seizing the underlying assets would make little sense in the current situation, the fund's founding partner Jan Petter Sissener told Reuters.

"One of the bonds has a hangar as security, who needs a hangar today? And the others, with security in slots at Gatwick, they don't have much value today either," Sissener said.

On the other hand, foreign creditors may not see it the same way, he added.

"It's the American bond holders that are calling the shots and they may have a different agenda, I don't know how they will react."

The stock has plunged almost 80% over the past two months as the crisis has engulfed the airline industry and deepened Norwegian's existing financial difficulties.

While Norwegian quickly qualified for access to 10% of government guarantees introduced to help businesses weather the coronavirus crisis, it must convince financial creditors to temporarily forego payments if it is to access the second tranche, worth 1.2 billion crowns.

To access the final tranche, of 1.5 billion crowns, the company must also raise equity, the government has said.

(Graphic: European airlines stocks plunge IMAGE link: https://fingfx.thomsonreuters.com/gfx/mkt/jbyvrxnoveo/airlines.PNG)

(Editing by Jan Harvey, Josephine Mason and Keith Weir)