iflyjetz

Excessive debt. They are not accounting for all of their costs - both planned costs and a reserve for extraordinary events - in their ticket prices. Their load factors are fine and their costs are not out of line. Norwegian took a highly successful intra-European airline and decided to have hypergrowth without properly pricing their tickets.

As a result of their hypergrowth, each quarter shows larger losses than the comparable year earlier quarter. While Q1's number is very bad, it would have been NOK 884 million greater loss if not for one time fuel hedging profits.

What is clear from reading their financial report is that they're taking on additional debt every quarter which is temporarily covering up how much money this company is burning through. With Norwegian encroaching on bond covenants (which is why they had to do the dilutive stock offering in March), it is becoming harder for Norwegian to roll their debt. Their short term (less than 1 year) debt is now approximately 1/3 of annual revenues. They will need to roll most of that over, and it appears that they are no longer able to obtain long term financing at favorable rates.

GUWonder

USA_flyer

For me, it was too much of a risk that they wouldn't be in business when I want to fly (Christmas).

iflyjetz

Norwegian has 250 million Euros of bonds that mature mid-December. The bond market is discounting them to where the bonds yield approximately 20%. That's about where WOW air bonds were priced right before they went under.

USA_flyer

I didn't know that. But it's the kind of thing that would encourage me to book away from an airline - any airline.

GUWonder

Care to put up the relevant charts for the past 3 years for WOW's bonds and Norwegian's bonds with what would be comparable maturity periods for each? Some may want to make their own judgment to see if they tell a better or worse or the same story as you indicate.

iflyjetz

No. Finding WoW's historical bond pricing at this point would be difficult and you're requesting that I spend several hours to locate and post data that you will simply poo poo anyway. Instead, I'll just post a Bloomberg article that confirms Norwegian Air's current bond yield on the secondary markets: https://www.bloomberg.com/opinion/ar...by-credit-card

Fifth paragraph of the article, unredacted (bolding mine):
While that’s due partly to its success in selling more tickets, Norwegian remains in a tight spot. The shares, a favorite with short-sellers, have plunged almost 60 percent this year. Meanwhile, Norwegian’s 250 million euros of unsecured bonds, which it must repay or refinance in December, yield a distinctly unflattering 19.5 percent. A first-quarter 1.5 billion kroner net loss wiped out about half of February’s capital increase.

GUWonder

Historical financial data is historical financial data and the numbers would be the objective numbers. Since the historical numbers for traded bonds are collected and retained by at least the exchanges on which the bonds traded, there is nothing to "poo-poo" about the historical trade numbers and yields for those bonds at the times when they were traded.

So you're indicating that you didn't really compare the actual data yourself to know how close or far in time WOW was from liquidation when WOW's bonds were yielding what DY's bonds of a comparable period of time remaining to maturity are yielding today? That is what seems like to me.

DY's bonds are definitely very deserving to be classified as having very high-yield, junk-bond status due to their highly sensitive financial position, but your Bloomberg opinion piece doesn't provide for any comparison to WOW's bond prices when WOW's bonds were yielding 19-21%. Is your hope to see DY collapse sooner than later?

Being able to get nearly $300 million in unsecured short-term debt financing is pretty impressive for a business supposedly facing imminent mortality, even if it's at 17-21%. If the $300 million in short-term financing came in at that rate and was contingent upon being secured (i.e. backed by collateral) debt financing, then I would be running into the Norwegian hills/mountains to avoid DY, ASAP.

iflyjetz

Well, then look it up yourself and post it. I know what WoW's bond prices were before collapse. Quit being both lazy and garrulous and look them up since they're so easy to find.

As for your statement about 17-21% bond yields, you obviously know zero about the junk bond markets. Those are deep distress levels. Collateralized debt is close to irrelevant at that point.

GUWonder

You made a claim about Norwegian's bonds in relation to WOW's bonds and proximity to going under, so I wanted to know what empirical data, if any, you used to make your claim to make a prognosis about the timing of DY's remaining lifespan based on bond data. I can't back up your claim using empirical data if you didn't use any such empirical data, and so I don't see what the point is in looking up data that you yourself didn't rely upon in making your claim about Norwegian's remaining future.

I know enough about junk bond markets to know that deeply distressed bonds can at times end up not remaining junk bonds when underlying circumstances of the company and/or the relevant financial markets change substantially. Not common, not unheard of, even if not likely with Norwegian. But what I don't know myself, I have the resources to find out from others who are professional experts in the area. But first I have to know what you were actually considering, if anything, in terms of objective, empirical bond data before I could ascertain whether the claim about DY is just part of a wishful desire to see DY collapse sooner than later or if it's something useful for consumers deciding what, if anything, to buy or not buy in terms of air travel services.

iflyjetz

This is a hilarious exchange. Have you ever tried to get an individual bond quote? It isn't as simple as getting a stock quote; most bond data is opaque and requires a subscription. Your latest response is simply a stab in the dark because you have no idea what WoW's bonds were trading for prior to shutting down operations. If you had even the slightest clue as to where to go for this information, you would have done so. But to satisfy everyone else here, the data for WoW's last bond issuance is posted below. Note that the bond issuance itself was considered a junk bond with a (very high) 9% coupon.

Here's the data:
WoW Air bond issued 9/24/18 with 9/24/21 maturity. 9% (plus 3mo Euribor, floor 0% on Euribor) coupon.
Price went to 99.75 after issuance and stayed there until the end of October when it moved down to 95, where it stayed (except for short dip to 94.75) until March 22. WoW shut down operations on March 27.
Do I also need to explain the 3 month Euribor rate?
https://markets.businessinsider.com/...1-no0010832785

Since you're a bond genius, please compute the yield on the bond when it was trading at 95. Hint: it's much lower than 19.5%. I defer to you on the subject.

GUWonder

iflyjetz

LOL! I provided more than enough data. I spoon fed you all of the needed information and purposely did not provide you the yield just prior to WoW closing its doors, as it is so easy to compute with all of the data provided - coupon yield, duration, and bond price. It was a simple test of your financial IQ - it is now crystal clear that you are in unfamiliar territory when it comes to corporate finance.
Have you even glanced at a single Norwegian Air quarterly filing?

I make no predictions on when Norwegian will be shuttered. John Fredriksen could decide to send more of his money to money heaven in a futile attempt to keep Norwegian afloat. There may be enough suckers out there that will buy another Norwegian bond issuance. On the other hand, Norwegian's bondholders could shut down the company immediately after they violate bond covenants. At this point, based on cash burn and bond payments due in the near future, Norwegian does not appear to have sufficient capital to survive the summer.

Since you have such great confidence in Norwegian Air's finances, I have provided you with a great investment opportunity - buy Norwegian Air bonds.

GUWonder

iflyjetz

I've already had one prediction today that was spot on for this thread. I'm good with that:
As predicted, you poo poo'd the very accurate data that I provided.

Just buy some Norwegian Air bonds since you're confident that they'll be around for a while...