Lufthansa (LHAGR; Baa3/BBB-/BBB-) potentially staking (AIRBAL 29s; NR/B+/B) IPO

Insiders telling Bloomberg now Lufthansa is considering taking a stake in AirBaltic who is expected to IPO within the next year - it is currently 98% government owned. Reminder Lufthansa early last week was eyeing a 20%/€180-200m stake in Air Portugal (also government owned).

The new AirBal 29s were a harsh refi in May - a 5.25NC2 secured line pricing at 14.5%/Z+1100. It has had a good run since; +10pts. S&P expects earnings recovery this year moving leverage into the mid-6-turns. Critically it receives a 2-notch uplift from baseline for the Latvian government's ownership. S&P's expectation was government would continue to retain majority AND controlling stake post-IPO. This mornings Bloomberg reports adds "Latvia has said it plans to keep at least 25% of AirBaltic after the IPO. Its Ministry of Transport, which is managing the sale, declined to comment.". It is unclear if this will impact S&P's notching - some of it was on airlines important role to the Latvian government who estimated 2.5% of GDP was linked to AirBal operations. If the government allows - and a higher rated peer like Lufthansa is interested - in taking a majority stake then that could also reverse to a credit positive.