EasyJet Signs New Five-Year $1.87B Loan; Shares Drop

EasyJet has signed a new five-year term loan facility of $1.87 billion (£1.4 billion) to boost its liquidity position as the British no-frills airline grapples with weak travel demand during the coronavirus pandemic. Shares fell 1.5% in UK midday trading.

EasyJet (EZJ) expects the loan deal to significantly extend and improve its debt maturity profile and bolster its balance sheet. Additionally, the airline announced plans to repay and cancel part of its shorter-term debt during the first quarter, which include the fully drawn revolving credit facility of $500 million and about £400 million in term loans. This in turn would help to “free up” a number of aircraft assets and further strengthen its balance sheet, the company said.

The new loan facility was underwritten by a syndicate of banks and supported by a partial guarantee from UK Export Finance as part of the government’s export development guarantee scheme. The scheme for commercial loans is available to qualifying UK companies and entails some restrictive covenants including future dividend payments, which Easyjet noted are compatible with its existing dividend policy.

“EasyJet has taken swift and decisive action, having now secured more than £4.5 billion in liquidity since the beginning of the pandemic,” EasyJet CEO Johan Lundgren commented. “The loan facility, provided on commercial terms, reflects constructive and collaborative work between EasyJet, multiple banks and UK Export Finance. With our unmatched short haul network and trusted brand, EasyJet is well positioned as customers return to the skies in 2021.”

Going forward, EasyJet said that the company will continue to review its financial position on a regular basis and weigh additional funding allies, should they become necessary.

Citigroup analyst Mark Manduca last month downgraded the stock to Sell from Hold and lowered the price target to 650p (16% downside potential) from 750p.

Commenting on the airline industry’s 2020 year-end prospects, Manduca said, “Fundamentally no one expected winter to be good…We knew it was going to be bad, it is bad, it just turns out it’ll be very bad.”

Meanwhile, Raymond James analyst Savanthi Syth reiterated a Hold rating arguing that “EasyJet has diluted shareholders to a greater degree [than rival Ryanair] (13% dilution vs. 3% at RYAAY) and has encumbered more of its fleet (27% remaining unencumbred vs. ~75% at Ryanair).”

“Additionally, the somewhat conservative near term capacity plan, although with still good fleet flexibility over the next few years, could exacerbate a history of less consistent cost execution,” Syth summed up. (See EZJ stock analysis on TipRanks)

Overall, the rest of the Street is cautiously optimistic on the stock with a Moderate Buy analyst consensus. That’s based on 7 Holds, 1 Sell and 5 Buys. The average price target of 886.02p suggests upside potential of more than 14% over the next 12 months.

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