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Written by admin on July 13th, 2009

United Airlines Issues $175 Million In Debt

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A week ago, United Airlines’ issued $175 million in new debt, the most expensive issuance in almost a decade. This was a clear sign that the airline is strapped for cash and has a few assets left to put up for collateral.

The sale of senior secured notes that yielded 17% comes just as U.S. air carriers are looking for new financing as a result of the collapse of their high-fare business travel. The move was also ushered forward by a 58% increase in jet-fuel prices over the last four months.

Many airlines are attempting to stockpile cash reserves in preparation for the seasonal decline that comes each autumn throughout the country.

For its part, United is paying almost six percentage points more than its competition in recent transactions. The previous issuance was the airline’s most expensive debt figure since July 2000 when it ended up selling $186.4 million at 8.03%.

Philip Baggaley, a credit analyst at S&P assigned the latest offering a B+ rating. He was clear that the 17% yield “is not a vote of confidence in their future.” He added, “They were certainly hoping to do better than this in terms of what they ended up paying. They’re raising cash where they can.”

Date compiled by Bloomberg noted that United’s $175 million of three-year, 12.75 percent debt priced at 90.07 cents on the dollar. Such an issuance has many analysts seeing desperation in the activities of the airline.

According to Jean Medina, a spokeswoman for United, the debt issue “will further boost our liquidity as we continue to take the right actions in response to the difficult environment, adjusting capacity and reducing our cost structure.”

“The transaction was oversubscribed with terms that reflect the structure, the nature of the collateral used and the tight credit market,” Medina said.

The borrowing costs of United have been compared to American Airlines and Continental recently and it has been shown that the United’s recent debt offerings are substantially larger than its competitors are. Investors are worried because this difference cannot be explained completely by the tightened status of the credit market.

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