United Continental Holdings Inc. was rewarded with the lowest interest rates on record on $892.1 million of bonds backed by jets in the first-ever debt offering secured by Boeing Co.’s 787 Dreamliner.
The $753 million of the most senior, Class A notes have a coupon of 4.15 percent and an expected maturity of April 2024, according to data compiled by Bloomberg. That’s the lowest ever for a so-called enhanced equipment trust certificate sold without bond insurance, the data show.
Fixed-income investors are ratifying United Chief Executive Officer Jeff Smisek’s view of the 787 as a “game-changing” aircraft. Secured by four 787s and 17 737-900ERs, the notes help set a precedent for future Dreamliner-backed debt, said Philip Baggaley, a Standard & Poor’s credit analyst in New York.
“The 787, even though it was less than half of the deal’s total collateral, certainly added to the credit story,” Baggaley said in a telephone interview.
The Dreamliner, which entered service in 2011 after more than three years of delays, hadn’t previously been used to secure bonds, said Kostya Zolotusky, managing director for leasing and capital markets at Boeing Capital, the finance unit for Chicago-based Boeing.
United’s March 8 sale also included $139.1 million of more junior Class B notes with a 6.25 percent coupon that mature in 2020, according to data compiled by Bloomberg. By comparison, Delta Air Lines Inc. issued similar debt with a 4.95 percent coupon in 2010, and the former Continental Airlines Inc. had a deal that same year with a 4.75 percent rate.
Rating From Moody’s
Moody’s Investors Service assigned the Class A notes a rank of Baa2, the second-lowest investment grade, and rated the Class B debt Ba2.
The most senior notes traded at 99.9 cents on the dollar to pay 215 basis points more than similar-maturity Treasuries as of 11:40 a.m. in New York, according to Trace, the bond price reporting system of the Financial Industry Regulatory Authority. They were issued at par. A basis point is 0.01 percentage point.
The twin-engine Dreamliner is the world’s first airliner built chiefly of composite materials, helping reduce fuel consumption. Its first commercial flight came in October, and only five of the jets have been delivered so far, all to All Nippon Airways Co.
Boeing is building the plane with more standardized features, making the 787 attractive to financiers because the jets can be placed more easily in different airlines’ fleets. Numerous possible seating configurations can be pre-drilled, enabling swift changes, Zolotusky said in a telephone interview.
United, based in Chicago, plans on bringing five of the planes into service during the second half of 2012, Smisek said in a Jan. 26 conference call with analysts.
“The Dreamliner will be a game-changing aircraft and we eagerly anticipate its induction into our fleet,” Smisek said.
The low coupons also reflect investor demand for bonds backed by jets, according to Jeff Straebler, an independent airline analyst in Stamford, Connecticut, who was formerly a debt strategist tracking the securities at Royal Bank of Scotland Group Plc. The perceived safety of the most senior portions of such offerings adds to the appeal, he said.
“United is probably the strongest legacy airline credit in a volatile industry,” Straebler said. “The market is hungry for paper now.”
United Airlines parent UAL Corp. merged with Continental Airlines Inc. in October 2010 in an all-stock deal, surpassing Delta as the world’s biggest carrier.