Air Canada sells record junk bond in boosted debt deal

Air Canada boosted the size of its refinancing after taking advantage of strong demand for the biggest high-yield corporate bond in Canadian dollars and upsizing the loan portion. The aggregate loan and bond transactions will likely total $5.7b, up from $5.35b initially planned last week, according to people familiar with the matter. Canada’s biggest airline increased the secured term loan to $2.3b, up from $2b, and it wrapped up the sale of C$2b of eight-year bonds and another $1.2b of USD-denominated securities. The transaction is Air Canada’s first major debt deal after getting a federal bailout package in April consisting of loans and equity worth nearly C$5.9b, making the government a shareholder for the first time since the 1980s. Air Canada’s proposed financing is secured by the airline’s international slots, gates and routes, or SGR, with a combined appraised value of about $12 billion, according to S&P Global Ratings, which grades the new secured three steps below investment grade. Such type collateral has been used by Air Canada’s rivals such as United to issue debt in US dollars. “It has been a popular financing method amongst U.S. airlines, but we haven’t seen this here yet,” said Dhruv Mallick, head of high-yield fixed income at Leith Wheeler Investment Counsel Ltd. “So it’s a way for Canadian investors to get access to this bond in an easier way.”<br/>