After raising close to $350 million in April, travel company Webjet (ASX: WEB) has today announced a 100 million euro (AUD$163 million) convertible note issue to pay off debt and build a war chest for potential acquisitions.
The announcement follows a UN report yesterday estimating COVID-19 would likely cut global tourism income from AUD$1.7 trillion in the event of a four-month standstill, or up to AUD$4.8 trillion if lockdowns run for 12 months.
When Webjet announced a capital raising in April it reported the proceeds would give it a pro forma liquidity of $470 million with respect to the end of February, but that figure fell significantly to $307 million by the end of May.
Now the company reports its cash position as at the end of May was $215 million, while its net working capital position was just $8 million.
Despite laying off around 400 people and finding ways to reduce expenditures predominantly in its WebBeds business, Webjet still had operating costs of around $15 million per month for the past quarter and had to cop a $39 million write-down of debtors.
Amidst this cash burn that is an obvious consequence of an inert travel industry, Webjet managing director John Guscic (pictured) insisted in an investor call that the company was well placed regardless of this new raising.
"We didn't have to do this we were under no compulsion to do this. This wasn't a knee jerk reaction to something that was unforeseeable in the environment that we found ourselves in March," Guscic said when asked about preparedness for a 'bear' market scenario.
"The total liquidity is over $300 million as of today. That comfortably sees us operating without duress in a zero or low-revenue environment well into 2021," Guscic said.
"If you were then to use this additional hundred million euros exclusively for the preservation of the business and assuming the worst case scenario of no revenue, then that just extends our runway well into 2022."
Almost a third of the convertible notes raised - or $50 million - will be used to pay down existing term debt, with the remainder held for potential acquisitions and ongoing capital management.
"The rationale is that the existing $300 million remains untouched, and that's exclusively to the preserve of the business and to ensure the longevity of Webjet through whatever happens over this next 18 months or so," he said.
"The incremental capital through the convert combo is it fulfills in excess of that but gives us the additional ability to make M&A acquisitions that we find attractive, and there have been some extraordinary opportunities that have come past our window over the course of the last two months."
Goldman Sachs International is acting as sole global coordinator and joint bookrunner for the offering, together with HSBC as the other joint bookrunner.
The notes will be able to be converted from anytime between 1 July 2021 and 60 days prior to the final maturity date in seven years' time.
Updated at 11:37am AEST on 2 July 2020.
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