Flight Centre: where next following $700m equity raise announcement

We examine the details and implications behind Flight Centre’s just-announced equity raise.

At base, all that really matters is liquidity.

In line with that, beleaguered travel company Flight Centre (FLT) today announced the details behind its much-anticipated equity raise, in addition to further clarifying the firm’s balance sheet strengthening initiatives; which, when finalised, should provide the company with ~$2.3 billion in liquidity.

Indeed, as Flight Centre’s Managing Director, Graham Turner stressed:

'With this funding in place and additional liquidity, we are in a much stronger position and are well place to weather a prolonged downturn, which currently seems the likely scenario, and to then take advantage of the significant opportunities that will arise once conditions normalise.'

Flight Centre share price: details of the deal

Looking at the specifics behind today’s announcement, Flight Centre revealed that it is aiming to raise approximately $700 million: made up of a fully underwritten $282 million Institutional Placement and a $419 million Entitlement Offer.

The Entitlement Offer itself will be structured as a '1 for 1.74 accelerated pro rata non-renounceable offer’; comprised of an institutional portion (~$280 million) and a retail portion (~$138 million).

Like Webjet last week, this freshly issued equity will come at a deep discount, with these new Flight Centre shares set to be issued at $7.20 per share. Not only does this represent a steep discount from Flight Centre’s last traded price of $9.910 per share – but it represents a hefty fall from grace against the stock’s 52-week high of $49.140 per share.

All up, this equity raise will essentially see Flight Centre’s outstanding shares double, with approximately 97.2 million new Flight Centre shares set to be issued off the back of this raise.

Other bits and pieces

Besides raising fresh capital, the company also announced that its 'existing banking group has agreed to provide a total of $200 million in bilateral term facilities and waive covenant testing' across the June and December periods.

This will take the Flight Centre’s total facilities to an enviable $450 million.

As a small catch however, the company did note that no dividends will be paid ‘while current bank facilities in place without banks' consent.'

Cuts, cuts and more cuts

Finally, Flight Centre today reiterated many of the cost cutting measures it is now implementing, including: a reduction of approximately 6,000 global staff, the closure of around half of the company’s global leisure stores and a sales & marketing spending freeze.

‘Flight Centre has moved to significantly reduce occupancy costs of the remaining retail network, by renegotiating rental agreement with landlords, discussions to date have been positive as FLT has pursued cost savings including rent-free periods and more flexible trading ours,' the company also said.

These initiatives are expected to see the company’s monthly cash costs hit 'just' $65 million and save Flight Centre some $1.9 billion, on an annualized basis.

How to trade ASX airline and travel stocks

What do you make of today’s capital raise announcement: are you bullish or bearish on Flight Centre’s prospects? Though at the time of writing FLT remains in a trading halt, you can still use IG’s world-class trading platform to trade a variety of airline and travel stocks – long or short

For example, to buy (long) or sell (short) Qantas using CFDs, follow these easy steps:

  • Create an IG Trading Account or log in to your existing account
  • Enter ‘Qantas’ or ‘QAN’ in the search bar and select it
  • Choose your position size
  • Click on ‘buy’ or ‘sell’ in the deal ticket
  • Confirm the trade

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