Funds airline Wizz Air is about to pay borrowing prices of little over 1 per cent on its debut bond, underscoring how buoyant credit score markets stay within the face of recent lockdowns and the unfold of a brand new virus variant in Europe.

The London-listed Hungarian provider adopted a string of European corporations which have issued debt at low rates of interest within the first two weeks of 2021, highlighting buyers’ confidence in central banks’ means to mitigate the protracted financial fallout from the coronavirus disaster.

Wizz Air’s three-year deal exhibits how fund managers are more and more keen to purchase bonds from even deeply-troubled sectors such because the airline trade, the place exercise has floor to a close to halt for one of the best a part of the 12 months, within the seek for any type of returns. In December 2020, 665,722 passengers travelled with Wizz Air, an 80 per cent drop in contrast with the identical month in 2019, in accordance with the corporate’s figures.

The European company bond market has skilled a frenzied begin to the 12 months, with investment-grade rated corporations, these on the greater finish of the rankings scale, borrowing at traditionally low yields from buyers flush with money. German vitality firm Eon raised €600m at a coupon of 0.1 per cent earlier this week, whereas Swiss engineering group ABB was capable of borrow €800m with no curiosity funds.

“Out there funding prices have by no means been higher,” mentioned Mark Lynagh, co-head of Emea debt markets at BNP Paribas.

Wizz Air offered €500m of three-year bonds at an rate of interest of simply 1.35 per cent on Wednesday, after receiving greater than €2bn of orders from buyers. The funds airline firm carries credit score rankings on the lowest rung of investment-grade, with a “unfavourable” outlook from businesses Moody’s and Fitch indicating that it might slip into junk-status within the close to future.

“[The volume of demand] demonstrates how a lot cash is on the market and that buyers need to put it into one thing with a little bit of [yield],” mentioned Matt Thomas, head of UK company debt capital markets at Barclays, who labored on the deal. He added that Wizz Air has a top quality steadiness sheet and has “come by an extremely tough 2020.”

“For thus many offers, the [order] books are big,” mentioned one UK-based fund supervisor. “Individuals are having to purchase [corporate debt] and so they’re nervous doing it.”

Wizz Air plans to capitalise on the collapse in air journey by increasing its bases in Europe whereas ailing rivals recede. One debt fund supervisor mentioned that the provider has adopted rival Ryanair’s mannequin of retaining each prices and ticket costs low. 

“It’s the primary a part of the air journey section that can actually bounce again,” he mentioned, including that Wizz Air has proved its “means to change on routes in a short time when there’s a small opening in lockdowns.”

Ryanair, Europe’s largest funds airline, raised €850m in September at a yield of three per cent.

The most recent spherical of nationwide lockdowns and journey restrictions in Europe has dealt a recent blow to an already struggling journey sector.

Regardless of lockdowns and journey restrictions throughout a lot of Europe, central financial institution actions and vaccine rollouts have depressed yields on European company bonds to pre-Covid ranges as buyers look in the direction of economies ultimately reopening.

The ICE BofA index of triple B-rated company bonds traded in euros, excluding monetary teams, yields 0.38 per cent in contrast with a excessive of above 2 per cent throughout the peak of market ructions final March.

One other debt fund supervisor mentioned that though company credit score yields have sunk decrease, “there’s no various to get some earnings.”