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Virgin Australia Selling $300 Million in Unsecured Bonds

Virgin Australia Selling $300 Million in Unsecured Bonds
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The airline Virgin Australia Holdings Ltd is raising $300 million for its first sale of unsecured bonds in a major battle with Qantas Airways Ltd regarding the country’s market for domestic travel.

To meet the carrier’s future US dollar funding requirements, Virgin will sell five-year junk-rated notes, this according to a regulatory statement. For the 8.5% loans, these were priced to yield 686 points over US government debt, an offer managed by Goldman Sachs Group, Inc. (NYSE: GSF).

While trying to win business class passengers from Australia’s largest airline in an environment deemed “fierce” by Moody’s Investors Service, Virgin is bolstering finances. Since October of last year, the carrier has sold bonds secured by its aircraft in the amount of $797.3 million and raised new equity in the amount of $304 million. For $293 million, the carrier saved a 35% stake in its frequent flier program.

As stated by Emma King, spokeswomen for Virgin, the carrier is 100% committed to this transaction as part of diversifying funding sources and further supplements of the company’s liquidity position. She added that Virgin is happy with the support on this issue received by the global investor.

John Borghetti, Chief Executive Officer of Virgin Australia worked to chip away at the 65% market share held by Qantas, which fueled losses for both airlines. A record net loss of $2.38 billion for the 12 months through June 2014 was reported by Qantas while in comparison, Virgin experienced a less severe loss of $311 million.

On November 10, the S&P 500 said that Virgin had become an intimidating competitor to Qantas in most areas. However, Virgin will be a gentler competitor environment next year, which should help earnings for the smaller carrier.

Currently, the S&P 500 rates Virgin Australia at a B+, which falls four levels below the investment grade. Moody gives Virgin a rating of B2, being equivalent to one score lower. The notes, legally subordinated to the carrier’s aircraft financings and secured facilities are rated lower by S&P at B- and Moody at B3.

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David Waring

David Waring was the founder of LearnBonds.com and has been a major contributor to the extensive library of investing news and information available on the site. Until the launch of Learnbonds.com in late 2011 there was no single site on the internet catering exclusively to the individual bond investor. This was true even though more individuals own stocks than bonds. Learn Bonds was launched to fill that gap.

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