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AirBaltic Bond Yields Soar to Record Highs Ahead of €257 Million Debt Restructuring Vote
Bond investors are bracing for a decisive moment in the airBaltic saga, and the market has already made its anxiety clear. Prices on the Latvian carrier’s €380 million bonds due 2029 collapsed to record lows on Wednesday, sending yields soaring as much as 176 percent, according to LSEG data. When bond prices fall that sharply, it means investors are pricing in real doubt about whether they will ever see their money back in full.
The trigger is a virtual creditor meeting scheduled for Friday that will effectively decide the airline’s near term fate. AirBaltic, majority owned by the Latvian government and backed by a longstanding relationship with Germany’s Lufthansa, is asking bondholders to approve a plan to raise up to €257 million through new super senior debt maturing in 2027. The vote needs support from more than 75 percent of those who show up, a bar the airline has already had trouble clearing once. An earlier meeting in August failed outright because too few bondholders participated, which is why the company lowered the quorum threshold to just over 25 percent this time around.
What has really spooked the market is the fine print behind the new financing. The proposed super senior notes would sit at the front of the repayment line, secured against collateral that includes eight aircraft and seven engines. That would push the existing 2029 bonds down to third priority, meaning current holders would effectively be voting to subordinate their own claim in order to keep the airline afloat. Yves Schwyter, founder of the aviation capital risk intelligence firm Vectus Intelligence, put it plainly, noting that existing holders are being asked to approve something that subordinates their own claim. Analysts have pointed to that dynamic as the likely driver behind Wednesday’s yield spike.
AirBaltic did not arrive at this point overnight. The carrier has spent much of the year dealing with engine shortages that grounded a meaningful portion of its all Airbus fleet, problems that also forced it to repeatedly delay a long planned stock market listing. Then came the war involving Iran, which sent jet fuel prices climbing and forced airBaltic to suspend profitable flights to Dubai, further straining a balance sheet that was already under pressure. The airline posted a first quarter net loss of €70.1 million this year, more than double what it lost over the same period a year earlier, even as revenue hit a record €149.1 million, up 12.3 percent year on year. Growing top line revenue paired with a widening loss is exactly the kind of mismatch that tends to worry bondholders.
This is not the first time this year that airBaltic has gone back to its creditors hat in hand. In mid August, bondholders agreed to a set of amendments on the existing bonds that let the airline capitalize rather than pay out interest due that month and in November, along with a temporary waiver of minimum liquidity requirements. That deal bought breathing room but did not solve the underlying funding gap, which is why Friday’s vote on the larger €257 million package matters so much more. If approved, the airline would get access to an initial €180 million almost immediately, with the remaining €77 million released once certain undisclosed conditions are met.
The Latvian government, which holds the bulk of airBaltic’s shares, has signaled it intends to bring its ownership down to roughly a quarter of the company once the broader recapitalization and any debt to equity conversion take effect. Latvia’s parliament is separately being asked to extend the repayment deadline on an existing €30 million state loan and to approve further government participation in the financing alongside private investors. Prime Minister Andris Kulbergs has called the situation very serious, and government advisers have reportedly told lawmakers that without creditor cooperation, existing shareholder value is effectively worthless.
Fitch has already placed airBaltic’s long term issuer default rating at CCC minus with a negative watch attached, and has warned it could cut the rating further if bondholders end up settling for worse terms than currently proposed. For an airline industry already squeezed by higher fuel costs tied to the Iran conflict, airBaltic has become something of a bellwether, a case study in how quickly a smaller, debt heavy carrier can find itself cornered when several pressures hit at once. Friday’s vote will show whether its creditors are willing to keep propping it up, or whether patience has finally run out.
