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Bloomberg
United Airlines Holdings Inc is planning to raise $5 billion by borrowing against its frequent-flyer program, pioneering a new tool for US carriers to boost liquidity amid the Covid-19 pandemic.
Goldman Sachs Group Inc, Barclays Plc and Morgan Stanley have committed to provide the financing and arrange syndication, United said in a statement. The deal, which is expected to close by the end of July, gives the carrier more financial firepower while allowing it to keep control over its MileagePlus customer loyalty program.
“Today’s update is clearly intended to put to rest any solvency concerns that investors may have had about United,†Credit Suisse Group AG analyst Jose Caiado said in a note to clients. The focus is now on the potential rebound in demand and earnings, he said.
The Covid-19 crisis is forcing loyalty programs into the limelight as airlines scurry for cash even if it means mortgaging key properties. Carriers are disclosing details such as valuation that were previously opaque, and additional borrowing efforts are in the works with American Airlines Group pledging the domestic assets of its AAdvantage program as collateral in talks to secure a $4.75 billion loan from the US government.
United fell 1.6% to $39.04 at 2:10 pm in New York, paring deep losses earlier.
In a separate regulatory filing, United announced plans to sell as many as 28 million shares through Citigroup Inc, Bank of America Corp and JPMorgan Chase & Co. At current prices, that would generate about $1 billion. United raised a similar amount in an April share sale.
United also expects to have access to $4.5 billion in loans from the government’s economic rescue package. Total liquidity will reach $17 billion by the end of September, excluding any proceeds from the share sale, the company said.
The MileagePlus deal will boost company finances during “the most disruptive financial crisis in the history of aviation,†United said. All or part of the loan facility can be replaced with privately placed debt securities, United said in a presentation.
United is turning to its rewards program after an effort last month to sell $2.25 billion of junk bonds fell flat with investors, who had concerns about the planes backing the debt. While the airline ultimately reached a deal, it decided to pull the transaction to seek more favourable terms and potentially a different structure later, Bloomberg News reported.
United valued its MileagePlus in the $20 billion range. American said last week that third-party appraisals have valued its AAdvantage program at between $19.5 billion and $31.5 billion.