Norwegian Air bonds reflect an aggressive business model
Norwegian closed 2017 at a net loss, provoking a selloff in stocks and bonds. The company is trying to fuel expansion with debt in order to score a victory in the low-cost, long-haul flights space. This has provoked a rapid escalation of costs, but should the company need to strengthen its balance sheet it could still reduce its stake in Norwegian Bank or sell older aircraft.
In the second half of 2018, Norwegian expects to take delivery of 32 of the 40 Boeing Dreamliners it has commissioned, and once they are put into service they will strengthen already open routes and open new ones.
Norwegian has won the award for the world's best low-cost airline for three years in a row.
Although distressed, we believe that Norwegian 7.25% Sr. Unsecured Notes due June 2019 offer an attractive yield (approximately 13%).
Minimum piece is 100,000 nominal EUR with 100,000 nominal USD increments. Return objective is primarily repayment and coupon payment.
You have to be aware that Norwegian is distressed. The company has a high debt-to-capital ratio and could suffer from increasing interest rates, higher costs of servicing new routes, and increased competition.
A deteriorating balance sheet might cause the company to default on its debt.
Stop: Low 80s
Target: Return objective is primarily repayment and coupon payment.
Time horizon: Medium term.
Source: Saxo Bank