With a debut convertible bond and new equity issuance, travel technology provider Amadeus gained a valuable liquidity boost in tough market conditions.

Ana de Pro

Ana de Pro

In this time of major economic disruption, it’s difficult to find an industry that has been hit harder than travel. Borders have been closed, planes have been grounded and holidays cancelled. While many airlines are being propped up by government bailouts, myriad other players have to rely on their own resources.

Spain’s Amadeus is a good example. It’s one of the industry’s major technology providers, thanks to its global distribution platform, which connects buyers with sellers, and its software that powers every step of the travel experience. It has always boasted a solid financial structure, with a debt-to-earnings before interest, taxes, depreciation, and amortisation (Ebitda) ratio of 1 to 1.5, good profit margins and high liquidity.

Cash is king 

“We generate quite a lot of cash, and under normal circumstances have quite visible sources of revenue thanks to our long-term contracts based on transaction volumes,” says Amadeus chief financial officer Ana de Pro. “For the last 30 years, with the exception of one-off events such as 9/11, wars or natural disasters, those volumes have generally increased. However, we have never experienced an event quite as global as the Covid-19 pandemic.” 

As the virus and lockdowns spread from China to Europe, Ms de Pro quickly realised the need to replace future lost revenues. “In any crisis, cash is king,” she says. “We acted very diligently and decisively at an early stage to secure enough liquidity to navigate through these challenging times.”

On March 23, Amadeus announced a cash-cutting programme, the cancellation of a proposed €320m dividend, and a €1bn bridge-to-bond facility arranged by JPMorgan, Citi and Crédit Agricole. On seeing the situation deteriorate as the pandemic and its fallout spread, Amadeus quickly mandated the same banks for a €1.5bn capital raise to further boost liquidity.

Departure from norm

Historically, Amadeus has financed itself via long-term bonds, commercial paper and, to a lesser extent, bank loans. But with S&P and Moody’s putting its credit rating on negative outlook, and with the need to reduce short-term maturities, it opted for a two-pronged capital markets transaction, comprising a €750m equity raise and a €750m concurrent offering of senior convertible bonds.

Explaining the departure from Amadeus’s normal funding mix, Ms de Pro notes that equity is a better way to shore up a company’s finances in times of stress. “When you face a situation where your revenues simply aren’t there, debt financing weakens your balance sheet,” she says. “To avoid that – and to ensure the company’s financial strength in spite of a very challenging 2020 – we asked our shareholders to provide some more funding.”

The convertible bond was the company’s first, and came at the dawn of a global issuance boom for the asset class. According to Dealogic, $19.4bn of convertible debt was sold in April and $26.8bn in May, which makes it the second busiest month on record. For Amadeus, the instrument appealed as a way to expand its pool of potential buyers.

“We wanted to secure €1.5bn. We were one of the first in Europe, and at that point the largest to tap the markets during the Covid-19 crisis, and also from the travel industry, which has been one of the hardest hit industry sectors,” explains Ms de Pro. She wasn’t sure how the market would react to such a combination of factors, so it made sense to open to different groups of investors to maximise the chances of getting the deal done.

Slick execution

Against a backdrop of market volatility, Amadeus knew it had to move quickly, so both legs of the transaction were conducted simultaneously via an accelerated book build (ABB) on April 2. The banks wall-crossed select equity and convertible investors to determine their level of interest, and by market close had garnered sufficient support.

“We launched the deal at 6.30pm, we had the first call for price revision in both placements at 8pm, and by 9.15pm we did the final revision and fixed the price of both transactions,” says Ms de Pro. The shares sold for €39, which was a 5.8% discount on the closing price. The bond coupon was set at 1.5% after being marketed at 1-1.5%, while the conversion premium landed at 40%, giving a conversion price of €54.60. The equity book was covered 3.8 times and the convertible bonds 1.8 times.

The equity and conversion price were driven down by Amadeus’s share price which, like all travel companies, had dropped since February. Nonetheless, the convertible bond premium and ABB discount would have met the company’s expectations in normal times.

“I’m proud that the company got such huge support from both existing shareholders and from those who have invested for the first time,” Ms de Pro says. “We did a successful wall-crossing, attracted strong demand on both legs, and the pricing and discount are very much in line with what could have been achieved in 2019.”

The capital raise equips Amadeus to confront even the most adverse scenarios projected by the International Air Transport Association – namely, a 55% decline in 2020 airline passenger revenues compared to 2019, and in 2021 a 34% decline on 2019. “Our approach is to prepare for the worst,” Ms de Pro says. “And if things turn out to be better, you can come back stronger.”


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