‘Open Like Crazy’: Bond Market Draws Airlines Shunning U.S. Aid

Every major U.S. airline has now shunned the U.S. government’s $25 billion emergency pandemic loans, avoiding the strings attached to that program in favor of the credit market’s warm embrace.

United Airlines Holdings Inc. announced Monday that it will raise $9 billion from institutional investors through a combination of loans and bonds. Part of that will pay off $520 million the company already borrowed from the federal government program.

The U.S. Treasury Department a year ago offered loans to prop up the industry as Covid-19 froze the business, but with terms viewed as onerous. The companies had to issue warrants to the government, and agree to restrictions on dividends, stock buybacks and executive compensation. Delta Airlines Inc. and Southwest Airlines Co. both opted out last year.

While United and American Airlines Group Inc. borrowed relatively small amounts, they had until next month to decide whether to fully embrace the program -- and its strict terms -- by taking several billion dollars of additional liquidity that was available to them. American bowed out by tapping institutional investors to raise $10 billion in March, and United has now also backed away.

The decisions largely reflect just how robust credit markets have been because of the Federal Reserve’s pandemic support -- its pledge to buy bonds and policy makers’ signal that rates will stay low for years.

“The market has been open like crazy for airlines,” said Roger King, a senior analyst at CreditSights. “They have issued debt right and left, and they have less pressure on liquidity.”

In addition to repaying what it’s borrowed from the Treasury, United will use proceeds from its debt sale to refinance a $1.4 billion term loan, a $1 billion revolver and to add cash to its balance sheet given the uncertain outlook for travel.

U.S.

Citigroup Inc. and Bank of America Corp. are jointly building a new fixed-income trading platform, with an initial focus on collateralized loan obligations.

  • Mega-deals were absent during the just-completed record $1.1 trillion quarter for M&A, but on Monday Microsoft Corp. announced a nearly $20 billion, all-cash purchase of Nuance Communications Inc.
  • French telecommunications and media company Altice Europe NV announced plans to sell dollar and euro bonds to refinance more expensive debt, with expectations that it’ll raise the equivalent of 3 billion euros
  • Real estate data firm CoreLogic is set to sell the largest acquisition-related loan in over a year, with commitments on the $4 billion offering due Tuesday
  • The already small universe of distressed debt will shrink even more after Voyager Aviation wraps up a restructuring deal that involves swapping debt for equity, new securities and cash
  • For deal updates, click here for the New Issue Monitor
  • For more, click here for the Credit Daybook Americas

Europe

SSAs are likely to retain their dominance of Europe’s syndicated bond market this week, according to a Bloomberg survey, extending this year’s leading run for the sector.

  • European Financial Stability Facility (EFSF) and BNG Bank NV are among the seven issuers set to price bonds totaling at least 7 billion euros on Monday
  • The U.K.’s lockdown easing takes another step forward on Monday with non-essential retailers reopening; still, U.K. credit broadly looks expensive after a significant rally since the selloff last March amid soaring business confidence
  • Europe’s vaccine campaign may be beset with delays, communication blunders and missteps, but in markets at least investors are united in wagering that the pandemic is on the way out

Asia

Ethically-focused bonds may be the flavor of the week for Asian issuers including green notes from Kia Corp. and China Water Affairs.

  • Individual investors in India are rushing to buy corporate bonds from weaker borrowers, taking bigger risks to boost returns in a debt market dominated by institutional investors
  • No matter the asset class, the outlook is turning bleak for China’s financial markets. The nation’s stocks, bonds and currency are losing their shine after an impressive start to the year

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