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Air New Zealand share price plunges 36% on bailout

The Air New Zealand Limited (ASX: AIZ) share price fell 36% on Friday after the airline received a bailout from the New Zealand Government. 

The airline has entered into a debt funding agreement, it will provide a standby loan facility of up $900 million to support Air New Zealand to manage the coronavirus outbreak. 

It can draw down funds if its cash reserves drop below a minimum threshold. 

The facility will be provided in two tranches – the first will be a $600 million tranche with an interest rate of between 8% to 9%. The second tranche will be the other $300 million with an interest rate of 9%. 

This facility will be available for 24 months and the interest rate will rise by 1% if the facility remains open after 12 months. 

Air New Zealand had to agree to various conditions, including cancelling its interim dividend. The Board thought this was the right thing to do considering the uncertain environment. It won’t be allowed to pay a dividend whilst this facility is in place. 

The New Zealand government is separately working with Air New Zealand to ensure services can still be provided, including repatriation flights, whilst also maintaining important transport lines. 

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Motley Fool contributor Tristan Harrison has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.