High Yield Issuance Window Slams Shut As United Pulls 11%-Yielding Bond

Just minutes after CNBC was discussing how fantastic the Fed put on High-Yield Bonds has been in setting a floor under the capital structure and enabling the biggest surge in stocks off the COVID-19 contagion lows (despite The Fed not having yet set one foot in the corporate bond space), an awkward headline hit that may prove to be monumental by Monday morning.

After early discussions in the low 9%-yield range, United Airlines was reportedly forced to increase the juice to 11% late this afternoon in order to encourage takers for its $2.25 billion bond offering.

Bloomberg reported that the changes come after the three and five-year bonds had only received about $1.5 billion of orders as of Thursday morning, the people added.

But then it got worse, as potential buyers continued to push for investor-friendly changes.

Bloomberg points out that the notes were secured on a first priority basis by a pool of 360 aircraft owned by United, leaving some investors concerned that these are not valuable enough to balance out the risk of investing in an airline whose business has been hit as governments across the globe have halted travel to help stem the spread of Covid-19.

The aircraft are close to retirement with a weighted average age of 19 years, CreditSights analyst Roger King wrote in a note published Wednesday. That means many of the planes will not be flying when the five-year bond matures, he wrote.

Despite investors’ apparent eagerness to buy any and junk debt issue this week – because they know there’s the greater fool in The Eccles Building coming in right behind them – United Airlines tonight abandoned its bond offering according to its latest filing.

UAL shares are down over 3% after hours on the news.

But perhaps more notably, this may force UAL to issue more stock and more systemically, force investors front-running The Fed to reassess the level of the strike price to assign to Powell’s Put.

Equity traders better start paying attention to what the CDS market is saying…