AFLYY Air France ADS (PK)

By Dominic Chopping

STOCKHOLM--SAS is set to be taken over by an investor group led by Castlelake, which plans to pump over $1 billion into the struggling airline, averting the threat of bankruptcy.

In the deal, the group will invest a total of $1.18 billion for majority control of the Scandinavian airline, wiping out existing shareholders and bringing an end to SAS's 22 years as a listed company.

The investor group will own around 86% of the airline, with U.S. investment firm Castlelake taking a 32% stake, the Danish state increasing its stake to 25.8% from 21.8%, Air France-KLM with 19.9% and Lind Invest, 8.6%.

"This is a significant achievement of our transformation plan," SAS Chairman Carsten Dilling said in a statement. "Securing new capital is one of the key pillars in the SAS Forward [transformation] plan and will provide a strong financial foundation to help drive our airline forward and facilitate our emergence from the U.S. chapter 11 process."

Like most airlines, SAS was severely weakened by the Covid-19 pandemic, when the company saw its revenue plummet, its cash reserves dwindle and its debt increase. Grappling with debt and cut-throat competition from low-cost carriers, SAS launched a restructuring plan early last year.

SAS aimed to adjust its cost base from top to bottom under the restructuring, slashing annual costs by SEK7.5 billion while cutting or converting SEK20 billion of debt and raising capital. But shortly after launching the plan, around 1,000 SAS pilots went on strike, worsening finances and prompting SAS to file for Chapter 11 bankruptcy.

SAS has sought to push through the comprehensive measures at a faster pace under Chapter 11, continuing to operate while negotiating with stakeholders.

As part of the process, earlier this year it began seeking new investors to inject cash into the reorganized business. Tuesday's deal includes $475 million in new unlisted equity, $700 million in secured convertible debt and $500 million in refinancing by Castlelake of SAS's current debtor-in-possession term loan.

As a result of the agreement, existing shareholders will be left with nothing and SAS plans to delist its shares during the second quarter of next year. Commercial hybrid bond holders are only expected to receive a modest recovery in their debt.

The governments of Sweden and Denmark each held a 21.8% stake in SAS before Tuesday's agreement. Denmark previously suggested it was open to injecting fresh funds and writing off debts, contingent on other investors contributing and as long as the government maintained some influence in SAS. Copenhagen Airport is SAS's largest hub and a key transit route, which Denmark is keen to maintain.

Sweden had previously rejected a plea for more cash, instead lending support to converting its debt into equity. It isn't part of the new investor consortium and will no longer be a shareholder in the airline.

SAS added that it intends to eventually join the SkyTeam Alliance, of which Air France-KLM is a founding member, and exit the Star Alliance, subject to any relevant approvals and emergence from the Chapter 11 process.

The deal remains subject to relevant approvals and emergence from the Chapter 11 process, while details and final documentation for the agreed transaction structure are yet to be finalized.

Write to Dominic Chopping at dominic.chopping@wsj.com

(END) Dow Jones Newswires

October 03, 2023 12:44 ET (16:44 GMT)

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