SAS risks S&P default rating with plan to convert debt to equity

Bloomberg

SAS AB risks a credit downgrade from Standard & Poor’s if the Scandinavian airline follows through with plans announced to convert debt into equity.
The Stockholm-based airline said it planned a number of measures, including a rights offering and swapping hybrid and unsecured debt for equity, to raise capital and lower its debt levels, while repositioning the business coming out of the Covid-19 pandemic.
Such debt restructuring measures are typically viewed by the ratings agency in the same way as a default, because they usually result in creditors receiving riskier assets like stock instead of being fully repaid in cash.
“We could downgrade SAS if we view an imminent credit
or payment crisis, or that the airline participates in transactions considered akin to default,” S&P said in an April 2021 report warning of a liquidity crisis over the following 12 months.
S&P declined to comment beyond the report. It currently rates SAS at CCC, three steps above default, indicating vulnerability to non-payment. Moody’s Investors Service meanwhile rates the company Caa1, three steps above the category that is likely in or very near default. Both of these ratings are on negative outlook. SAS said it doesn’t comment on credit rating changes.
The airline relied on a bailout from Sweden and Denmark to survive the outbreak, which has stifled demand for air travel for more than two years. The shares have lost more than half their value since the start of the coronavirus pandemic, including dilution from earlier debt restructuring.
As part of the rescue plan in 2020, SAS converted about $242 million of fixed-rate bonds into common shares and 1.6 billion kronor of junior ranking notes with a perpetual maturity, or so called hybrids.