By Victoria Klesty
OSLO (Reuters) - Bondholders in Norwegian Air (OL:NWC) are set to vote on Thursday on the airline's debt-to-equity plan, the first major test of the budget carrier's rescue efforts amid the coronavirus outbreak.
The carrier may run out of cash by mid-May unless its plan, involving a swap of up to $1.2 billion worth of debt into equity and hands over most of the ownership to the firm's lessors and bondholders, is approved by creditors and shareholders.
If successful, the plan would allow Norwegian to tap government guarantees of up to 2.7 billion crowns ($260 million) which hinges on a reduction its ratio of debt to equity, on top of 300 million crowns it has already received.
Bondholders start voting after 1600 CET (1400 GMT). If they agree, the plan will be put to shareholders on May 4 for their own approval.
Norwegian Air warned on April 27 that taking the company through an alternative route of bankruptcy proceedings in Norway would destroy much of the value left in the firm and that most creditors would likely recover little of their claims.
Some bondholders have said they would vote in favour of the plan, although the outcome of the vote is unclear.
PIONEER
Norwegian grew rapidly in the last decade to become Europe's third-largest low-cost airline and the biggest foreign carrier serving New York and other major U.S. cities but it also accumulated debt and liabilities of close to $8 billion.
Before the novel coronavirus outbreak all but shut down air traffic due to government-imposed travel restrictions, the airline had taken steps to cut costs and routes, aiming to make a full-year profit for the first time in four years.
Currently only paying invoices vital to its minimum operations, such as salaries for staff still employed and critical IT infrastructure, Norwegian has put payments for ground handling, debt and leases on hold.
Norwegian Air is yet to announce the conversion price at which the swap is to take place before four separate votes take place - one for each of the four bonds proposed to be converted into equity.
The plan, if approved by bondholders, also requires backing from shareholders at an extraordinary general meeting scheduled for May 4, and from leasing firms.
The airline also plans to raise 400 million crowns from selling new shares.
(editing by David Evans)