United Airlines Scraps $2.25 Billion Debt Sale Due to Weak Investor Appetite
United Airlines Holdings Inc. (UAL) backtracked on a plan to raise $2.25 billion through a bond offering after the ailing U.S. airline struggled to attract sufficient demand.
The air carrier announced that it has “decided not to proceed with its previously announced proposed offering of $2.25 billion in aggregate principal amount of two series of notes”, according to a SEC filing late on Friday.
The embattled company sweetened the yield to 11% from about 9%, Bloomberg News reported Thursday, due to weak demand for the three- and five-year notes. The weak reception indicated limited investor appetite for bonds from companies hard hit by the coronavirus pandemic amid a surge in corporate debt offerings.
U.S. airlines are collectively burning more than $10 billion in cash a month incurring huge losses as stay-at-home orders tied to the coronavirus pandemic have halted air travel demand. As a result, air carriers have been implementing thorough cost-cutting plans, as well as taking steps to shore up its cash buffers.
Warren Buffett, a fond believer in the U.S. airline industry, disclosed earlier this month, that his investment conglomerate Berkshire Hathaway (BRK.A) divested all of its holdings in the sector saying that the “world has changed for airlines”. The move triggered a sell-off in airline stocks.
Shares in United Airlines jumped 12% on Friday, fueled by a broad stock market rally amid early signs of a gradual relaxation of some of the coronavirus-related lockdown restrictions. Year-to-date the stock is still down 72%.
For now, it looks like Wall Street analysts are divided on the airline’s stock. Seven are sidelined with a Hold and 5 are optimistic with a Buy adding up to a Moderate Buy consensus rating. When it comes to the company’s shares though, analysts forecast a whopping 119% upside potential in the coming 12 months putting the average price target at $55.60. (See United Airlines stock analysis on TipRanks).
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