Southwest Prices $1.25 Billion in Notes at Rates of Up to 6%
Key Facts
Southwest Airlines priced a registered offering of senior notes with an aggregate principal amount of $1.25 billion on October 26, according to an announcement by the company via PR Newswire. The issue comprises two tranches: $600 million due in 2029 with an annual interest rate of 5.750%, and $650 million due in 2031 with interest of 6.000%. The longer-dated tranche puts borrowing costs above the rate on outstanding notes the company may repay with the proceeds. The company said net proceeds from the offering will be used for general purposes, which may include repaying those notes or other obligations. The company did not link the financing announcement to its operating outlook or quarterly results.
The outstanding notes Southwest may repay total $300 million, carry an annual interest rate of 3.000% and mature on November 15, 2026. This potential use means part of the new financing may go toward meeting a near-term maturity, while the new tranche due in 2031 carries a higher rate. The company also said net proceeds may be used to repay or redeem other obligations, without specifying a final amount for each use in the announcement. The offering memorandum describes the new notes as direct, unsecured and unsubordinated obligations, ranking equally with the company’s other unsecured debt. The company does not intend to list the notes on an exchange, and no public trading market exists for them at issuance.
The offering comes as the company ended the third quarter of 2026 with total liquidity of $5.6 billion on September 30, comprising $3.6 billion in cash and cash equivalents and a $2.0 billion revolving credit facility, according to results filed with the U.S. Securities and Exchange Commission. Southwest Airlines reported record quarterly operating revenue of $8.4 billion, up 21.2% year over year. Its operating margin was 4.5%, up 4 percentage points from the same period a year earlier. At the same time, fuel expense rose $821 million compared with the third quarter of 2025. Fuel cost $3.92 per gallon, above the previous assumption range of $3.70 to $3.75.
The company lowered its 2026 adjusted earnings-per-share outlook to a range of $2.60 to $2.85, while forecasting fourth-quarter adjusted earnings of $0.55 to $0.80 per share. It also lowered its full-year capacity growth outlook to about 1.2%, from previous guidance of about 1.5%. For fuel, Southwest assumes a cost of about $4.55 per gallon in the fourth quarter, based on the forward price curve on October 15, 2026. The bond offering coincided with the outlook announcement following third-quarter results, but the company did not say the earnings outlook reduction was the reason for issuing debt. It returned $176 million to shareholders through dividends in the third quarter.
The issue adds new financing to the company’s debt-market activity in the preceding period; in October 2025, it priced a prior senior-note offering totaling $1.5 billion, split equally between two tranches due in 2028 and 2035. The company said in its 2025 annual results that it repaid $3.3 billion of debt and finance lease obligations, and issued $1.5 billion of unsecured notes in November that year. Under the current offering memorandum, if a change of control is accompanied by a downgrade below investment grade, the company must offer to repurchase the affected notes at 101% of principal, plus accrued interest. Southwest expects to complete the offering on or around November 2, 2026, subject to customary closing conditions. The company scheduled its fourth-quarter earnings call for January 28, 2027, at 10 a.m. Eastern Time, and set a Capital Markets Day in New York on March 2, 2027, to present its multi-year financial framework, targets and path to achieving them.