United, which reported the decision in a Securities and Exchange Commission Form 8-K, didn’t explain the move there. It had planned to use the proceeds to pay down one-year, $2 billion term loan that it received in March.
The airline was disappointed with the terms of the notes, sources told Bloomberg. The issuers were contemplating a yield of 11%, the sources said.
That’s much higher than the rate on the loan, which is as much as 2.5 percentage points above the London interbank offered rate during the loan period, Bloomberg reports.
Investors were uncomfortable with the collateral for the notes: United jets. That’s because the value of the jets could rapidly decline through usage.
United hopes to negotiate an alternative debt deal with better terms and perhaps a different structure, one of the sources said.
The junk-bond market has been on fire, with issuance and declining yields since the Federal Reserve’s massive infusion of liquidity into credit markets in recent weeks and its pledge to buy the high-yield bonds if necessary.
United has been hammered by the coronavirus, which has kept would-be travelers at home. It has reduced flights by 90% this month.
It has $9.6 billion in liquidity and is receiving $5 billion in payroll funds as part of the government bailout.
United shares recently traded at $24.05, down 5.4%.
The stock has dropped 69% over the past three months, compared with a 13% slide for the S&P 500 index.