Rolls-Royce Holdings PLC (LON:RR.) said it has agreed the pricing of the £2bn bond element of a refinancing package to see it through the coronavirus (COVID-19) crisis.
The bond issue will be in three tranches of senior unsecured notes comprising US$1bn with a coupon of 5.75%; €750mln at 4.625% and £545mln at 5.75%. The bonds mature in 2026 and 2027.
Rolls Royce added it has doubled the size of the bond issue due to strong demand.
The offer forms part of a £5bn recapitalisation package designed to give the engines maker the financial strength to withstand the impact of COVID-19 and flight restrictions. Airlines form a big chunk of the firm's customer base and many of its contracts are based on hours flown.
The recapitalisation package also includes a £2bn rights issue and commitments for a new £1bn loan facility.
The bond offering is expected to close on October 21, 2020, and the proceeds will be escrowed and become available upon successful completion of the rights issue.
Rolls Royce said that due to the increased size of the bond offer it had it decided not to go ahead with a £1bn expansion of its existing £2bn UK Export Finance loan facility,
Investor interest
Susannah Streeter, senior investment and markets analyst, at Hargreaves Lansdown noted that the fact that there has been so much investor interest in the bond offering could be seen as a vote of confidence in its long term strategy.
"That plan focuses on Rolls Royce’s Defence and Power Systems businesses, as Civil Aviation struggles to recover, and is unlikely to do so for some time. Its gold plated brand will certainly have attracted investors, even though it’s lost the investment-grade rating on its debt.
But Rolls-Royce will be left counting the cost of servicing that debt, said Streeter, as the bonds come with much higher coupons, or interest due than previous issues.
Rolls shares have rocketed since details of its right issues of share were announced as some of the uncertainty over its future has cleared.
The engineer had already flagged it would raise a substantial sum of money from shareholders and had become one of the most shorted stocks on the London stock market.
Shares in Rolls were valued at 130p when the terms and price were announced but were trading at 177p today having been as high as 223p last week.
A shareholders meeting is scheduled for 27 October to approve the rights issue. Shareholders on the register on 23 October will be entitled to participate with-ex-rights trading set to start on 28 October.
The final deadline to accept the offer is 11 November.
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