Southwest Airlines inked three separate capital markets deals over two days amounting to $6 billion, bringing its total cash haul in less than a week to more than $9 billion.
Last week the Dallas airline announced that it had brought in $3.2 billion in government funding, including $2.3 billion as a grant and $948 million as a low-interest loan backed by 2.6 million shares of its common stock.
The new transactions included an offering of 70 million shares of common stock on April 28 for proceeds of $2 billion; an offering on April 28 of $2 billion in 1.25% convertible senior notes due 2025; and an offering on April 29 of $2 billion worth of 4.75% and 5.25% senior notes due 2023 and 2025, respectively.
Southwest’s legal team includes chief legal officer Mark Shaw, deputy general counsel Marilyn Post and corporate counsel Jason Shyung.
Vinson & Elkins advised the airline on the new transactions, as it did on the government funding, while Sidley Austin assisted the underwriters.
V&E’s team was led again by Dallas partner Robert Kimball and New York partner Brenda Lenahan along with Houston partner David Stone. They had assistance from senior associates Katherine Frank in Dallas and Stancell Haigwood in New York and associates Cameron Land, Elizabeth Janicki, Claire Wenholz, Sydney Verner and Joanna Enns, all of Dallas.
Partners David Peck and Wendy Salinas and associate Lauren Meyers, all of Dallas, counseled on tax matters.
Sidley’s team was co-led by Houston partners Kevin Lewis and Jon Daly and included partners in the firm’s New York office (Michael Schiavone and David Ni). Assisting them were Houston associates Kayleigh McNelis, Tanner Groce, Leslie Slaughter, Sabina Wahl and Femi Aborisade and an associate in New York (Matthew Finkelstein).
Helped by the recent funding, Southwest now has more than 12 months of cash on hand after entering the COVID-19 crisis as the best positioned airline, Raymond James analyst Savanthi Syth said in a note April 30. She cited the airline’s strong balance sheet and fortuitous MAX grounding, which provides greater capex/fleet order flexibility.
“Southwest’s relative advantage is further supported by its predominantly U.S. exposure and somewhat low-cost structure given our view that domestic demand is likely to recover faster than international travel and leisure traffic is likely to be more resilient once travel bans are lifted,” Syth said.
Southwest said April 28 it priced the common stock offering at $28.50 per share along with its $2 billion in 1.250% convertible senior notes due 2025.
The stock offering was boosted from its previously announced 55 million shares and the convertible notes offering was increased from the previously announced $1 billion. The gross proceeds are expected to be $4 billion.
Underwriters have a 30-day option to purchase up to 10.5 million more shares and $300 million in more convertible notes.
The initial conversion rate is 25.9909 shares of common stock per $1,000 principal amount of the convertible notes, or around $38.48 per share – a 35% premium over the offering price per share in the common stock offering.
The two issues are expected to close May 1. Southwest expects to use the net proceeds for general corporate purposes.
Morgan Stanley, BofA Securities, J.P. Morgan, BNP Paribas and Citigroup are the joint book-running managers for both offerings and Morgan Stanley, BofA Securities, and J.P. Morgan are representing the underwriters of the offerings.
Southwest said April 29 it priced its underwritten public offering of $2 billion in senior notes. That offering is expected to close on or about May 4.
The company expects to use the net proceeds from the notes offering to repay part of the outstanding borrowings under its amended and restated 364-day credit agreement.
BofA Securities, BNP Paribas, Citigroup, J.P. Morgan and Morgan Stanley were joint lead book-running managers for the notes offering and Goldman Sachs & Co. and Wells Fargo Securities are joint book-running managers.