United Airlines Faces Setbacks in Bond Deals
United Airlines, Inc.faced challenges this week as two bond deals were pulled from pricing due to unfavorable market conditions. The airline has postponed these deals until 2026 in hopes of more favorable market conditions. The decision was made after the team was unable to generate enough investor interest in the shorter maturity bonds.
According to a source familiar with the deal, this could be a result of outflows, poor performance, and overall credit caution that has buyers hesitant to invest. Other junk-rated deals, such as a $94 million borrowing for American Leadership Academy – Lexington, were also moved to the day-to-day calendar this week.
In another instance, a $98 million bond deal for the Chesterfield Hotel Project was downsized from an original size of $110 million. The senior bonds, with 6. 125% coupons and 2060 maturity, saw yields of 6. 375%. The subordinate tranche with 11. 55% coupon due in 2065 priced at par. As a result, the team was forced to downsize the deal and seek a higher yield to entice investors.
The third piece of the deal, the $277. 4 million AMT airport system special facilities revenue refunding bonds, did successfully price. These bonds, with a 5. 25% coupon due in 2026, saw yields of 3. 85%. The demand was strong enough that it was “bumped in some tenors,” according to a buyside source.
Bank of America Securities led the underwriting team, with senior managers JPMorgan, Loop Capital Markets, Raymond James, and Morgan Stanley, and co-managers RBC Capital Markets, Siebert Williams Shank, and Mesirow Financial. The city of Houston, the issuer of the bonds, did not respond to requests for comment.
The special facilities revenue bonds were rated BB-plus by S&P Global Ratings, and as of December 31, 2024, United guaranteed approximately $2. 9 billion of tax-exempt special facility revenue bonds issued for various airports.
According to a second buyside strategist, the United deal faced some challenges due to its below-investment-grade rating and its subject to the alternative minimum tax. The strategist noted that the lack of retail interest in Texas, compared to the usual interest in New York, may have affected the deal’s success.
The strategist also pointed out that high-yield muni mutual funds have seen slowed inflows in the past few weeks, with outflows of $162. 1 million for the week ending Wednesday, which is double the previous week’s outflows. This, coupled with the fact that high-yield munis are significantly trailing investment-grade bonds, has made it difficult for deals like United’s to find success.
Despite these setbacks, the overall muni market is seeing gains in November and year-to-date. Investment-grade munis have seen gains of 0. 15% month-to-date and 4.