Southwest Airlines Co. priced $1.25 billion of senior unsecured notes on Monday, tapping the investment-grade bond market weeks before a batch of older, lower-cost debt comes due.
The Dallas-based carrier sold $600 million of 5.750% notes due Nov. 15, 2029, and $650 million of 6.000% notes due Nov. 15, 2031, the company said. The 2029 notes were priced at 99.936% of face value to yield 5.772%, or 1 percentage point over the comparable Treasury. The 2031 notes were priced at 99.710% to yield 6.067%, a spread of 1.25 percentage points, according to the pricing term sheet the company filed with the Securities and Exchange Commission.
Refinancing at higher coupons
Southwest said it expects to use the net proceeds for general corporate purposes, which may include repaying at maturity all $300 million of its 3.000% notes due Nov. 15, 2026, as well as repaying or redeeming other debt. That swap illustrates the cost many corporate borrowers face as cheap debt from the low-rate years matures: the new coupons are roughly double the rate on the bonds being retired.
The term sheet listed expected ratings of Baa2, BBB and BBB+ from the three major credit rating firms, keeping the notes in investment-grade territory. Interest is payable twice a year, on May 15 and Nov. 15, starting in May 2027.
Structure
Both series carry a make-whole call before their par call dates, Oct. 15, 2029, for the shorter notes and Oct. 15, 2031, for the longer ones, after which Southwest can redeem them at face value. If a change of control triggering event occurs, Southwest must offer to buy back the notes at 101% of principal plus accrued interest.
The offering is expected to settle on or about Nov. 2, five business days after pricing. Because that is longer than the standard one-day settlement cycle, investors who want to trade the notes before then will need to make alternative arrangements, the filing said.
Underwriters
Barclays Capital, BNP Paribas Securities, Standard Chartered Bank, U.S. Bancorp Investments and Wells Fargo Securities led the sale as joint book-running managers, and the term sheet also listed BofA Securities, Citigroup Global Markets, Goldman Sachs, J.P. Morgan Securities, Morgan Stanley and PNC Capital Markets as joint bookrunners. The notes were sold off an effective shelf registration.
Southwest operated 803 Boeing 737 jets serving 120 destinations as of Sept. 30, the company said.
