United Air pulls US$2.25b junk-bond deal on weak demand

[CHICAGO] United Airlines Holdings is abandoning a US$2.25 billion (S$3.18 billion) sale of junk bonds after the deal fell flat with investors on concerns about the planes backing the debt.

The carrier "has decided not to proceed with its previously announced proposed offering", according to a regulatory filing late on Friday by United.

The airline sweetened the yield to 11 per cent from about 9 per cent, Bloomberg News reported on Thursday, due to weak demand for the three- and five-year notes.

United, which is getting US$5 billion in payroll assistance from the US government and has access to a potential federal loan of US$4.5 billion, is rushing to raise additional money amid the worst crisis in the history of the airline industry. In the US, passenger totals have tumbled more than 90 per cent as Covid-19 has all but erased travel demand.

The airline's shares dropped 4.2 per cent to US$24.35 after the close of regular trading in New York. United has tumbled 71 per cent this year, the biggest decline on a Standard & Poor's index of major US airlines.

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Investors had proven eager to lend to companies that have been hit hard by the coronavirus pandemic. But the weak reception to United's deal signaled the limits to their appetite after a surge in debt offerings.

United's bonds were expected to price on Thursday but the deal dragged on as investors balked at the aging fleet of jetliners pledged as collateral. The notes are secured on a first priority basis by a pool of 360 aircraft owned by United.

Some investors were concerned that the planes weren't valuable enough to balance out the risk of investing in an airline whose business has been hit as governments across the globe have restricted travel to help stem the virus's spread.

As well as increasing the yield, United also added a clause that would trigger repayment of the bonds at a substantial premium to par, known as a make-whole, should the company file for bankruptcy.

Proceeds from the offering were intended to repay a US$2 billion one-year loan that United signed with a group of four banks on March 9 to raise liquidity as the virus disrupted global travel.

JPMorgan Chase & Co was leading the deal.

BLOOMBERG