United Airlines is set to become the latest US carrier to pay back a sliver of the taxpayer money it borrowed at the height of the coronavirus pandemic, using proceeds from a blockbuster $9bn fundraising across bond and loan markets this week.
The Chicago-based airline pledged its travel routes, some aircraft and flight simulators to obtain a $7.5bn credit line from the US Treasury last year under provisions of the Cares Act. However, the company only ever made one draw on the facility totalling $520m, which it said on Monday it planned to repay.
United received a much larger sum — $7.7bn — from two tranches of the government’s payroll support programme, with an estimated $2.4bn to come from a further round, according to analysts at Cowen. Most of the support is provided as a grant, contingent on the airline not culling staff, but it will still owe the Treasury roughly $3bn.
The $520m loan the carrier plans to pay off has so far accrued about $9.5m of interest, according to Financial Times calculations, and it came with the issue of 1.65m warrants giving the Treasury the right to buy United shares at a price of $31.50 each.
Were the US Treasury to exercise those warrants and sell the shares, they would net about $40m for US taxpayers at Monday’s share price of $55.75.
With the government standing behind the companies and the US Federal Reserve pumping money into financial markets, airlines have repeatedly been able to tap investors for additional funding to see them through the pandemic, despite a plunge in air travel.
Now, with the rollout of a coronavirus vaccine and optimism that the lifting of restrictions on movement will provide a jolt to economic activity, the companies are tapping investors on even better terms.
“The vaccinations are running their course and airline travel is picking up,” said Matt Eagan, a portfolio manager at Loomis Sayles. “Debt markets are open . . . Companies in Covid-tainted sectors are rallying a lot.”
United’s $9bn fundraising follows American Airlines, which raised an industry record $10bn last month and used some of the proceeds to repay the $550m it had borrowed under its US Treasury loan facility.
The Cowen analysts calculated that US taxpayers had a notional gain of 10.2 per cent on the American Airlines loan, including interest and the value of warrants that the Treasury continues to hold. American will have taken about $12bn after three rounds of bailout funding, including $3.5bn it must pay back.
United’s publicly traded bonds have slowly recovered from their nosedive at the outset of the pandemic, though the company still burnt through cash at a rate of $9m a day in the first three months of the year, according to a regulatory filing on Monday.
The company plans to borrow $5.5bn through bonds maturing in 2026 and 2029, secured against its routes, slots and gates, and a further $3.5bn in the leveraged loan market. It is also looking to set up a new $1.75bn revolving credit line with its banks.
Alongside repaying some of its taxpayer loans, United will refinance $2.4bn of other debt and an outstanding $1bn revolving credit line.
The rest of the proceeds will add to the company’s cash reserves to help see it through the pandemic.
“They need to be sure that they have enough capital for a recovery that is likely to be choppy,” said Cowen analyst Helane Becker.
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