Gogo’s Stop-and-Go Junk Bond Offering Finds Buyers in Second Try

  • Wireless internet firm sold $525 million of six-year notes
  • Debt sale came just two weeks after it nixed original deal

In-flight wireless internet provider Gogo Inc. sold $525 million of six-year junk bonds just two weeks after aborting a bond sale. This time, it was forced to pay more.

Investors had already started trading Gogo’s previous $525 million of bonds when the company canceled the sale on May 26. The internet provider said it nixed the sale after receiving a proposal from a “major” airline customer, without identifying the carrier at the time.

On Thursday, two weeks after it pulled the deal, it paid 12.5 percent on the notes, half a percentage point more than it offered the first time. As in the prior sale, it issued $25 million more than it initially planned.

The company yanked its debut junk-bond deal in May after completing negotiations with American Airlines Group Inc. on the fate of its services for the carrier, according to marketing material sent to prospective investors on Thursday. The new agreement reduced uncertainty surrounding its relationship with the airline, the company said.

However, Gogo also told investors that under the revised deal the airline may remove its services on a significant portion -- or potentially all -- of about 550 planes from time-to-time over the next several years. Gogo served more than 1,000 American Airlines aircraft as of the end of March, according to the company’s quarterly earnings report.

Under Pressure

Matthew Duch, a money manager at Calvert Investments in Bethesda, Maryland, which has about $12 billion of assets under management, said he passed on the new offering after learning of the potential uninstalls.

“Is 50 basis points enough to compensate me for that?” Duch said. “I don’t think so.”

The Chicago-based company has been under pressure because its ground-based wireless network doesn’t have the capacity to allow everyone on an average flight to connect, forcing it to set surge pricing when demand is high. It had been embroiled in a public spat with American Airlines, which wanted to exit its contract with Gogo in favor of a rival that offered faster service.

American last week split an order between Gogo and ViaSat Inc. for in-flight internet services. The carrier selected ViaSat for satellite-based connections on a group of 100 aircraft yet to be delivered to American, while choosing Gogo’s new 2Ku service for 134 Airbus Group SE A319s and A320s.

Repaying Loan

Gogo’s shares have fluctuated as the company worked out its new agreement with the airline and flip-flopped on its debt sale. The stock rose 16 percent to $11.21 on May 26 after it announced the new airline proposal. Since then, that entire gain has evaporated.

Gogo said it intends to use proceeds from the new debt sale to repay a term loan and for general corporate purposes, “including potential costs associated with the launch and commercial roll-out of Gogo’s next-generation technology solutions,” the satellite-based system 2Ku system.

Moody’s Investors Service rated the bonds a B2 on Thursday, five steps below investment-grade. S&P Global Ratings graded the notes B-, one notch lower.

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