United Airlines Pledges Prized MileagePlus Loyalty Program as Collateral for New $5 Billion Loan
United Airlines announced on Monday that they will secure $5 billion in new financing using their MileagePlus loyalty program as collateral. The carrier also expects to borrow $4.5 billion in the loan provision of the U.S. Cares Act, secured with slots, gates and routes.
Today, United Airlines announced that they will raise an additional $5 billion in liquidity, using their prized MileagePlus loyalty program as collateral. With over 100 million members and more than 100 program partners, MileagePlus is a core asset for the company that typically generates stable revenues and free cash flows. Syndication of the transaction will be arranged by Goldman Sachs Lending Partners LLC, Barclays Bank PLC and Morgan Stanley Senior Funding, Inc., with Goldman Sachs Lending Partners LLC acting as the sole structuring agent and lead left arranger of the transaction. The transaction, which is expected to close by the end of July 2020, will allow United Airlines to continue to “operate, evolve and grow” the MileagePlus program.
The carrier also expects to borrow an additional $4.5 billion under the loan provision of the U.S. Cares Act loan provision. United believes it has enough slots, gates and routes to collateralize the full $4.5 billion available under the loan program. Including existing liquidity, United Airlines expects to have around $17 billion in liquidity by September 2020. As part of the requirements of the Payroll Support Program (PSP) under the U.S. Cares Act, participating airlines have been prohibited from reducing pay or involuntarily furloughing employees through September 30, 2020.
United Airlines has implemented numerous cash preservation measures since the onset of the global COVID-19 pandemic including a reduction in CAPEX, operating and vendor expenditures, a suspension of raises, a hiring freeze and an unpaid time off program for management and administrative employees. The company has also introduced voluntary leave and separation programs, cut its CEO and President’s base salaries by 100 percent. United Airlines expects to have a daily cash burn rate of around $40 million during the second quarter, which will be reduced to around $30 million per day during the third quarter of 2020.
In trading Monday morning, shares in United Airlines Holdings, Inc. (NASDAQ: UAL) were 6.13% lower at $37.23/share (9:53 AM EDT).
Source: United Airlines/PRNewswire