United Airlines is set to become the last U.S. carrier to repay some of the taxpayer money it has borrowed to match the Coronavirus pandemic, using the proceeds of a successful $ 9 billion fundraiser in the bond and loan markets this week.
The Chicago-based airline has pledged its travel routes, some planes and flight simulators to get a US Treasury $ 7.5 billion line of credit last year under the provisions of the Cares Act. However, the company only ever made a single draw on the facility totaling $ 520 million, which it planned to pay back on Monday.
He received a much larger sum – $ 7.7 billion – from two installments of the government’s wage bill support program, with an estimated $ 2.4 billion coming from a further, according to Cowen analysts. Most of the support is provided in the form of a grant, with the proviso that the airline does not eliminate staff, but it will still owe the treasury around $ 3 billion.
The $ 520 million loan he plans to repay has so far generated around $ 9.5 million in interest, according to the Financial Times calculations, and it came with the issue of $ 1.65 million. warrants entitling the Treasury to purchase United shares at a price of $ 31.50 each. .
If the U.S. Treasury exercised those warrants and sold the shares, it would earn U.S. taxpayers about $ 40 million on Monday’s share price of $ 55.75.
As the government supports businesses and the US Federal Reserve injects money into financial markets, airlines have been able to repeatedly solicit investors for additional funding to help them weather the pandemic, despite a fall in air transport.
Now, with the rollout of a coronavirus vaccine and optimism that lifting movement restrictions will bring a shock to economic activity, companies are appealing to investors on even better terms.
“Vaccinations are running their course and air travel is picking up,” said Matt Eagan, portfolio manager at Loomis Sayles. “The debt markets are open. . . Companies in sectors contaminated by Covid are mobilizing a lot. “
United’s $ 9 billion fundraiser follows American Airlines, which raised an industry record of $ 10 billion last month and used part of the proceeds to repay the $ 550 million it had borrowed under its US Treasury loan facility.
Cowen analysts calculated that U.S. taxpayers had a 10.2% notional gain on the American Airlines loan, including interest and the value of warrants the Treasury continues to hold. The American will have taken about $ 12 billion after three rounds of bailout funding, including $ 3.5 billion that he has to repay.
United’s publicly traded bonds slowly recovered from their slump at the start of the pandemic, although the company still burned cash at a rate of $ 9 million a day in the first three months of the year, according to a regulatory filing Monday.
The company plans to borrow $ 5.5 billion through bonds maturing in 2026 and 2029, secured against its routes, slots and doors, and an additional $ 3.5 billion in the lending market. leveraged. It also plans to set up a new $ 1.75 billion revolving line of credit with its banks.
Along with paying off some of its taxpayer loans, United will refinance $ 2.4 billion in other debt and an outstanding $ 1 billion revolving line of credit.
The rest of the proceeds will be added to the company’s cash reserves to help it weather the pandemic.
“They need to be sure that they have enough capital for a recovery which is likely to be volatile,” said Helane Becker, analyst at Cowen.
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