Air Canada terminates debt buyback plan as markets turn

TORONTO, June 28 Fri Jun 28, 2013 6:53am EDT

TORONTO, June 28 (Reuters) - Air Canada said it would terminate a tender offer to buy back certain bonds due to the recent volatility in debt and capital markets.

Canada's largest airline said in a statement late on Thursday that the market volatility had made refinancing terms unattractive.

Investors pulled $7.97 billion out of U.S.-based bond funds in the week ended June 19 in the first three-week streak of outflows since August 2011, according to data released this week.

Most of the outflows came after U.S. Federal Reserve Chairman Ben Bernanke's comments last week that the bank might reduce its $85 billion in monthly bond purchases later this year if the economy is strong enough. Bernanke also said the Fed might end the program in mid-2014.

Bernanke's comments triggered a selloff in bond and stock markets, catapulting U.S. Treasury yields to 22-month highs.

This in turn has raised financing costs for companies, including Air Canada, seeking to tap debt markets.

Montreal-based Air Canada said it would not accept any of the notes that have been tendered into its offer. The company will promptly return or credit all notes previously tendered and not withdrawn.

The debt Air Canada had been intending to buy back included its 9.25 percent senior secured notes due 2015, its 10.125 percent senior secured notes due 2015, and its 12 percent senior second lien notes due 2016.

"The strength of our balance sheet and our business overall, and the fact that the notes do not mature until August 2015 and February 2016, provides us flexibility to take advantage of a more opportune time to refinance the notes," Chief Financial Officer Michael Rousseau said in the company's statement.

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