United Airlines Gets $5B Loan Against MileagePlus

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Airlines have been in search of new equity and debt financing trying to get through the current Covid-19 pandemic without a visit to the bankruptcy court or entirely collapsing.

United has today secured $5B in debt financing backed by its MileagePlus-program. The airline is currently losing $50M a day.

Here’s the filing from United:

MileagePlus Financing

On June 12, 2020, UAL, United and their subsidiaries Mileage Plus Holdings, LLC (“MPH”) and Mileage Plus Intellectual Property Assets, Ltd. (“MIPA”) entered into a commitment letter (the “Commitment Letter”) with Goldman Sachs Lending Partners LLC (“GSLP”), Barclays Bank PLC and Morgan Stanley Senior Funding, Inc. (collectively, the “Lead Arrangers” or the “Committed Lenders”) pursuant to which, the Committed Lenders have committed to provide MPH and MIPA with, and the Lead Arrangers have agreed to arrange, a term loan facility of up to $5.0 billion, subject to the satisfaction of certain customary conditions (the “MileagePlus Financing”). GSLP will act as sole structuring agent and lead left arranger for the MileagePlus Financing. It is expected that MPH and MIPA will seek long-term debt financing in lieu of borrowing the full available amount under the committed term loan facility, or in order to refinance amounts drawn under the committed term loan facility, subject to market and other conditions.

Prior to the closing of the proposed MileagePlus Financing, United and MPH will contribute to MIPA their respective rights to certain MileagePlus intellectual property, including brands and member data. The debt issued in the proposed MileagePlus Financing will be secured on a first priority basis by, among other things, the assets of MIPA, MPH and their subsidiaries, specified cash accounts that include the accounts into which MileagePlus revenues are or will be paid by its marketing partners and by United, and pledges of the equity in MIPA, MPH and certain additional subsidiaries. In addition, UAL, United and certain of their subsidiaries, including all subsidiaries of MPH, will provide senior guarantees of the obligations under the proposed MileagePlus Financing. MIPA and MPH will continue to be wholly-owned subsidiaries of UAL and United, and the MileagePlus program is expected to continue to operate as it has in the past. The agreements governing the MileagePlus Financing will include the requirement that, upon the occurrence of certain mandatory prepayment events, which include, among others, issuances of debt other than permitted debt, MPH and MIPA will prepay the MileagePlus Financing debt to the extent of any cash proceeds received in connection with such prepayment event, plus an applicable premium. In addition, the financing documents will provide that an uncured early amortization event, which includes, among others, the failure to meet a required debt service coverage ratio, will require MPH and MIPA to make one or more early amortization payments. The occurrence of an event of default under the financing documents may cause the entire outstanding portion of the MileagePlus Financing debt to become immediately due and payable.

Following the closing of the proposed MileagePlus Financing, MPH and MIPA intend to lend to the Company the net proceeds from the MileagePlus Financing, after depositing a portion of such proceeds in a reserve account.

The MileagePlus Financing is expected to be seamless for both MileagePlus members and partners, with no change in the day-to-day operations of the program.

Multiplying MPH 2019 EBITDA by a factor of 12 equates to a MileagePlus valuation of approximately $21.9 billion.

In connection with commencing discussions with potential investors in the proposed MileagePlus Financing, the Company is making available certain information about MPH and the proposed MileagePlus Financing, a copy of which is attached to this report as Exhibit 99.1, and a term sheet setting forth the significant terms and conditions of the proposed MileagePlus Financing, a copy of which is attached to this report as Exhibit 99.2.

There is no assurance that the proposed MileagePlus Financing will be completed on the terms described herein or at all or when it may be completed.

Here are some interesting slides from the presentation:

Here’s the PDF:

Download (PDF, 10.08MB)

Conclusion

A month ago, United’s $2B+ bond sale failed that was backed up by old planes and parts (essentially worthless crap). This time the same endeavor was successful by mortgaging the MileagePlus.

The airline still expects to burn roughly a billion a month (more currently) in the third quarter of this year, and to have $17B in liquidity left (will burn fast).

United claims that the MileagePlus is worth $21.9B based on its earnings in 2019 multiplied by 12. The problem is that there is hardly any value in MileagePlus itself if the airline behind it ceases to exist. What happened to TopBonus when Airberlin collapsed or JetAirways frequent program members when the airline crashed?

Attaching a value to MileagePlus sounds good, but its profitability (MileagePlus’) entirely depends on what valuation the airline internally uses for issued award tickets. You can show the program to be a massive moneymaker by valuing award flights at a fraction of their costs.

It is difficult to see how the US airlines could pull it through without paying a visit to the bankruptcy court and renegotiating obligations (yet again). You have to keep in mind that we are now on month six to the Covid-19 pandemic that will likely last 18 to 24 months and the economic recovery much longer. It will take 3 (optimistic) to 5 (realistic) years for the travel to get back to the end of 2019 levels.

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