airBaltic Delays Its Bondholder Vote to Tuesday. The New Money Would Cost 25% a Year.

RIGA — airBaltic (BT) pushed its bondholder vote back by four days late on Thursday, moving a meeting convened for Friday to 12:00 GMT on Tuesday, September 15, which is 15:00 in Riga. Fitch Ratings told Reuters hours later that it estimates the Latvian carrier needs about €156m to keep operating in the short term, and that the airline's options would be "quite limited" if stakeholders turned the plan down.

The plan itself is public. airBaltic's notice for Friday's meeting attaches the complete interim financing term sheet, a 37-section document that prices the money, names the two funds behind it, and sets out what the airline would have to do to keep drawing on it. The terms are proposed rather than agreed. The document is expressly non-binding except for its provisions on the work fee, cost coverage, confidentiality, exclusivity and advisor arrangements, and it carries a blank day in its own date line.

What the New Bonds Would Pay

The new bonds would carry 25% a year. Interest would not be paid in cash. It would be capitalized monthly and added to principal, so the balance compounds until the bonds fall due on February 26, 2027. They would not amortize, and an event of default would add a further 10 percentage points.

airBaltic's existing paper is the €380m senior secured notes due 2029, which the term sheet still describes as carrying a 14.5% coupon. The interim money would cost about 10 percentage points more than that, for roughly five months.

The €257m that airBaltic put in the headline of its September 3 announcement describes proceeds rather than face value. Both tranches would be sold at an issue price of 95% of face. The first is a principal amount of up to €189,473,684, which delivers €180m in gross cash. A second tranche, or tap, of up to €81,052,632 delivers €77m more. About €270.5m of face value would be created before a single interest payment capitalized.

Fees sit on top, and most of them would also be paid in bonds rather than cash. Polus Capital Management, the credit fund Reuters named, and a second provider the wire did not name, Klirmark Capital 4, would split a €3m work fee for structuring the transaction, settled in additional new bonds at closing. If the deal has not closed by September 30, that fee converts to cash. Polus would take a commitment fee worth 10% of the minimum threshold, the half of each tranche reserved for it, and the two funds would share a backstop fee worth 10% of the free float, the portion offered to existing bondholders. Both are payable in more bonds. Holders who vote in favor of the resolutions would receive a consent fee of 0.25%, and that one is cash.

The proceeds would not go into the airline directly. They would be on-lent to a new special purpose vehicle, which would use them to buy out Export Development Canada's position as lender to the two leasing entities that hold the aircraft, excluding the debt relating to a full flight simulator, before the remainder was on-lent down to airBaltic.

Where Existing Bondholders Would Rank

The waterfall has three steps. New bonds rank first against the shared collateral and their holders control enforcement. A second tier, the uptiered bonds, is created for holders who put new money in and exchange part of their 2029 notes into a senior instrument. Everything still sitting in the 2029 notes ranks third.

The security is wider than the eight aircraft and seven engines Reuters described. Section 18 of the term sheet lists eight A220-300 airframes and seven PW1521G engines, then adds the existing collateral package for the 2029 notes, shares in both leasing borrowers, assignments of lease rights and of airframe and engine warranties, insurance assignments, the airline's bank accounts outside Latvia, and the maintenance and bond service reserve accounts. Not less than US$17,494,563 of maintenance reserves held against the Axiom aircraft would convert into security deposits held by the security trustee.

The Engines Would Have to Be Back on the Wings by October 9

Drawing the first tranche would start a clock. The conditions that trigger after that issuance, some with event-of-default consequences and some with ongoing covenant obligations, read more like an inventory audit than like financing covenants.

Titled engines not currently installed on their titled aircraft would have to reach Riga (RIX) by October 4 and be reinstalled, along with titled landing gear, by October 9. Late delivery moves the reinstallation deadline day for day, but no further than October 14 unless the parties agree otherwise. The term sheet requires Alton Aviation Consultancy to identify and notify gaps in the technical, maintenance and title records covering the aircraft, engines, APUs and landing gear, and those identified gaps would then have to be remedied. Spare parts owned by the company would have to be worth more than €20m at cost and tested weekly, while the company would have to hold at least €10m in liquidity.

The reporting obligations point at the same hardware. airBaltic would have to tell the funders where every engine stand it owns is located, weekly, and keep them updated on claims relating to the aircraft and engines, "including specific arrears owed to Pratt & Whitney in relation to the ongoing servicing arrangements," identified by individual airframe and engine serial number.

airBaltic operates one aircraft type and one engine type. Its A220-300s are powered by Pratt & Whitney's PW1521G, and Airways reported in July that A220 engine supply problems had grounded aircraft and repeatedly pushed back the airline's planned listing. The same engines that secure the debt fly the schedule that has to service it.

The Second Tranche Is a Restructuring Gate

The €77m tap would not be available on the same terms as the €180m. It is conditional on airBaltic entering a lock-up agreement for a full restructuring, carried out either as a scheme of arrangement under Part 26 of the UK Companies Act 2006 or as a restructuring plan under Part 26A.

The term sheet names who would have to be inside that lock-up. Holders of the existing and uptiered bonds. At least 75% by value of the airline's shareholders, which means Latvia. Operating lessors representing not less than 75% of the group's lease value by pre-restructuring contractual value. Lufthansa, in its capacity as counterparty under airBaltic's aircraft, crew, maintenance and insurance arrangements. Pratt & Whitney. Airbus.

Binding commitments from equity and exit-debt providers would have to be executed, and the funders would have to be satisfied that the Latvian government's support continues. An engine maker the airline owes money to and an airframer it buys from would each hold a position inside the condition list for the airline's second drawdown.

The Fleet Plan Behind the Money

The business plan the financing is meant to fund was published on August 11. Its metrics table puts the fleet at 36 aircraft this year and next, recovering to 41 by 2031, against the roughly 100 aircraft the airline had previously planned for. Scheduled-service capacity falls from 9.6bn ASKs this year to 8.7bn in 2027 before reaching 10.5bn by 2031. The plan also assumes partial equitization of the 2029 notes, which is what existing bondholders would be asked to accept at the restructuring rather than at Tuesday's vote.

Latvian public media has described the same plan as a cut from 54 aircraft to 36 by the end of this year, measured against the fleet the airline was operating in midsummer. Board member Vitolds Jakovlevs told Latvian Television in August that total capacity would fall only about 10%, because the destinations coming out are the thin ones and the flying that remains concentrates on denser routes across a flatter summer-winter profile.

None of it has reached the traffic figures. airBaltic carried 554,700 passengers in August, up 5% year on year, on 4,801 flights, up 7.9%.

Latvia Has Not Decided Whether to Put In Money

The state holds 88.37% of airBaltic's voting rights and Deutsche Lufthansa 10%, the stake it bought for €14m in early 2025 alongside the wet-lease arrangement that places A220s in Lufthansa Group networks. airBaltic says the interim financing is not conditional on a contribution from the state, and that the state may participate proportionally to its existing bondholding.

Whether it will is unresolved. The Cabinet backed continuing the stabilization process on September 8 without ruling on state participation, and Prime Minister Andris Kulbergs said afterwards that the state is not currently making an investment. The term sheet says the state would have to hold off on repayment of its unsecured lending until after December 31, 2026, and use its control rights to support the proposed transaction, including voting for required bondholder resolutions and supporting implementation as a controlling shareholder.

That lending matters because of what happened in June. airBaltic missed the June 26 deadline to fund its bond reserve account, and an August 14 payment would attract a 16.5% quarterly rate if missed, compared with the standard 14.5% coupon under the existing issue terms. The same month, Kulbergs disclosed that the government was in talks with an unnamed investor about taking over the carrier.

Assembling These Bondholders Has Been Slow

Friday's postponement is the second time this year that a meeting of airBaltic's bondholders has not transacted business on the day it was called, though for different reasons. The meeting set for August 3, on a separate set of extraordinary resolutions covering deferred interest and cash reserve requirements, convened and found that holders of only a fraction of the bonds had registered. The airline's adjournment notice records that the 75% quorum requirement was not met within 15 minutes. Under the trust deed, a reconvened meeting needs only 25%, so the same resolutions were put again on Zoom on August 17, passed, and produced a second supplemental trust deed executed on August 24.

Friday's meeting never convened at all. airBaltic moved it before the day, saying holders needed more time to review the draft resolution and submit voting instructions. The 2024 issue was allocated to more than 100 investors across 23 countries.

Two things about Tuesday are still open. The term sheet can move, since it binds nobody outside its five carved-out provisions and runs under a 45-day exclusivity period. And none of the documents reviewed here says what happens to the operation if the resolution fails. Fitch's assessment of the alternatives, delivered on the morning the vote was meant to happen, was that they are quite limited.