Swissport’s bonds sold off heavily on Monday morning as investors grew increasingly nervous about the stretched finances of the Swiss aviation services company’s Chinese parent HNA Group.
S&P last week cut Swissport’s rating one notch to B-, deeply in “junk” territory, citing the “aggressive acquisition policy, tolerance for high leverage, and contracting liquidity” at its parent company HNA. The financial health of the airlines-to-finance conglomerate came under scrutiny this year after Chinese regulators acted against private companies moving money out of China.
Both Swissport’s €364m 6.75 per cent secured bond and its riskier €265m 9.75 per cent unsecured bond fell to below face value for the first time this year on Monday. The unsecured bond is now bid at 97.25 cents on the euro, according to Tradeweb data, which equates to a yield of more than 10 per cent.
“It’s all about HNA,” said one bond trader. “There’s so much noise around it.”
These unsecured bonds were bid as high as 110 cents at the start of November, meaning that bondholders are sitting on a 13 percentage point paper loss in little over a month.
Swissport’s short-term loans to the HNA Group have sparked particular concerns among bond investors. The Swiss company made a €400m 90-day loan to an affiliate of HNA in August that was due to mature at the end of November. However, Swissport informed its bond investors earlier this month that it was rolling the maturity of the loan to January 28, while also allowing HNA to delay payment on €8m interest.
The rollover of the loan has particularly rattled some bond investors because the indenture for Swissport’s bonds states that loans to HNA affiliates “cannot be extended beyond 90 days”. The company has been able get around this restriction because it has said it has made “a new €400m related party loan” on a “cashless rollover basis”.
“It’s a little disingenuous – it’s not really in the spirit of the law,” said one bond investor.
HNA’s bonds also came under pressure on Monday. The €300m 363-day bond HNA raised at 8.875 per cent yield in November is now trading at 93.75 cents on the euro.