Originally Posted by
Gate_15L
The balance sheet looks like it can take it.
There is 1.74 Billion AUD sitting as cash and equivalents on the balance sheet as of 30 June 2019.
Another tranche of USD issued bonds matures Nov 19. Coupon rate of 8.5% Sure, unsecured and a Moody's rating of B3. Speculative (junk) grade.
But if your an investor willing to take a risk in the current low interest environment, you're probably going to take a punt. If you put it in the bank, you'll be paying them to keep your money soon with interest rates projecting to go negative. 8.5% is fairly attractive for the given risk.
So according to the financial report 30 June 19, there is $568.9 million AUD in bond liabilities coming due, the last USD issued bonds. VAH are now issuing bonds in AUD, bit smarter as they earn in AUD and the FX rate is going to have less of an effect. There's actually $771.9 million AUD in total liabilities coming due on the balance sheet.
So with $1.74 billion AUD in cash, that leave just over $1 billion AUD in the kitty. They will no doubt re-issue the current maturing USD bonds into AUD bonds Nov 19 and get some of the cash back. and use that to purchase Velocity.
They'll re-buy Velocity, sure at double what they sold it for. $700 million AUD. But VAH will own it outright.
On the last report, for the year, a 65% stake of Velocity brought VAH $383.8 million AUD. So 100% ownership should bring in roughly $590 million AUD. They would have paid $700 million to bring in an extra $200 million AUD into the balance sheet per year. The purchase will pay for itself in 3.5-4 years, add resilience and diversification to revenue streams, which Scarrah said he want to do.
$700 million which will be re-issued as bonds, paying roughly $60 million in interest per year, to bring in an additional $200 million into the balance sheet. Not a bad deal. And it should still leave VAH with around $1 billion in cash on the balance sheet.
A waaay better purchase than a certain Western Australian FIFO ATR72 regional operation.....
I'm nominating this one for post of the year. S&P have said that the balance sheet can handle it, even with around A$1.1bn in debt due over the 2020 fiscal year. Yes, VA are paying a pretty penny to bring Velocity completely back in-house, but loyalty programs are more lucrative than the airlines attached to the side of them, so the board will see this as a big win. Selling points to banks raises cash and is highly profitable, especially when you control the redemption conditions. This will help add to their cash flow and gives them a lot more flexibility to run the program how they see fit in the future.
And that certain WA operator...yeah they screwed themselves for years and years with that one after they got hoodwinked into paying exorbitant leases on the ATRs that are sitting in storage in Nelson. Mind you, they seem to have done their best to gut what was left of the operator in the meantime, so much so it became better to cosy up with Alliance. But hey, hindsight is 20/20, right?