United Airlines pulls high-yield deals

A pair of Houston speculative-grade bond deals for United Airlines, Inc. were pulled from pricing this week amid wider weakness across the high-yield municipal market.

The airline delayed the deals until 2026 to wait for more favorable market conditions, a source familiar with the deal told The Bond Buyer.

Buyside sources said the team was unable to get enough investor interest in the shorter maturity bonds. “It’s probably a combination of outflows, poor performance, and overall credit caution that has buyers on the sidelines,” one high-yield buysider said.

Other junk-rated deals may have been shelved or downsized as well this week.

A $94 million unrated borrowing for American Leadership Academy — Lexington through the South Carolina Jobs-Economic Development Authority scheduled to price Tuesday was moved to the day-to-day calendar as of Thursday, according to a source. Underwriter Baird did not immediately respond to a request for comment.

Truist Tuesday priced $98 million of grant revenue bonds for the Chesterfield Hotel Project through the Powhatan County Economic Development Authority, which appears to be downsized from an original size of $110 million, according to bond documents. The senior bonds, with 6.125% coupons and 2060 maturity, saw yields of 6.375%. A subordinate tranche with 11.55% coupon due in 2065 priced at par.

United was scheduled to sell on Nov. 18 about $220 million of bonds to finance a larger catering operations facility for United at George Bush Intercontinental Airport, with another approximately $180 million of bonds for construction and equipping of a replacement ground services equipment facility for the airline, which is the airport’s biggest carrier. Neither deal priced as scheduled on Tuesday.

A third piece, $277.4 million of AMT airport system special facilities revenue refunding bonds that refinanced 2011 debt, did price, and saw bonds with a 5.25% coupon due in 2026 yield 3.85%; 5.25s of 2030 at 3.87%; 5.5s of 2035 at 4.15%; and 5.5s of 2038 at 4.36%.

The demand was strong enough that it was “bumped in some tenors,” said the buyside source.

Bank of America Securities leads 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.

Bank of America declined to comment. The issuer, the city of Houston, did not respond to a request for comment.

The special facilities revenue bonds were rated BB-plus by S&P Global Ratings. As of Dec. 31, 2024, United guaranteed about $2.9 billion of tax-exempt special facility revenue bonds issued for various airports.

On the two parts of the deal pulled, “they had a lot of the longer maturities down, but they couldn’t get interest in the shorter ones,” said a second buyside strategist.

Those pieces could have been cheapened up and gotten done, but the issuer did not want to do that, they said.

“The United deal is a little interesting because it’s below investment grade, it’s [subject to the alternative minimum tax]. You’re not going to get any retail in Texas; it’s not like it was New York,” the strategist said. “So you’re not going to get any retail [interest] in the maturities they were looking for.”

Intermediate funds might go into 2041 and 2042 maturities, but they’re not going to “care” for ones inside 10 years, so it looks like it was more a structure issue, they noted.

Flows into high-yield muni mutual funds have slowed over the past several weeks, and the week ending Nov. 12 saw outflows of $80.06 million, according to LSEG Lipper.

“So you’re not getting this huge flood of money coming into high yield, so it’s probably not helping,” they said.

Munis overall are seeing gains in November and year-to-date. Investment-grade munis are seeing gains of 0.15% month-to-date and 4.07% YTD, and high-yield munis are showing positive returns of 0.28% MTD and 2.59% YTD.

But high-yield munis are significantly trailing investment-grade bonds, primarily due to underperformance in sectors such as transportation — mainly due to credit concerns over Florida’s Brightline train — and tobacco, said J.P. Morgan strategists led by Peter DeGroot in a weekly report on Wednesday.

Overall, the “proportionate amount of high yield issuance relative to total market is at or above its average,” said John Miller, head and CIO of First Eagle’s High Yield Municipal Credit team, in a conversation before the United deal was pulled. Miller noted that monthly high-yield issuance this year has reached as high as $5 billion at times, but not all deals have gotten done.

Some of the riskier deals, for instance, have been shelved, but some of the college and traditional deals on the high-yield front seem to get done very well, Miller said.

Karen Pierog contributed to this report.