United Airlines, facing an unprecedented need for liquidity as the travel industry battled the impact of Covid-19, agreed in June a US$3bn secured term loan that was issued by MileagePlus, the airline's loyalty and frequent flyer programme.
The Goldman Sachs-led transaction marked the first-ever financing backed by a US airline loyalty programme's intellectual property, helping United obtain a cost-effective liquidity injection supported by its core asset.
“The question was how to create a financing where the market, despite that backdrop of uncertainty, could finance in a structure where [investors] had relatively strong protections on intellectual property,” said Kevin Sterling, head of Americas leveraged finance at Goldman Sachs.
Goldman was the sole structuring agent and lead left bookrunner. It also provided a substantial upfront commitment to the facility, which matures in 2027.
"United came to us and said: ‘We know the collateral we have to go out and raise capital against. We know we have no access to unsecured [debt]. We've tapped our banks … in terms of bridge loans or short-term facilities. Can you talk to us about what sort of other assets we might have?’” said Christina Minnis, co-head of global credit finance at Goldman.
The innovative transaction combined intellectual property of the airline loyalty programme and technology from structured finance and leveraged finance to achieve investment-grade ratings.
"One of the unique things that we were able to do is attach a financing at that subsidiary, which is first priority on cash coming in and out of the company associated with anything related to mileage," Sterling said. "That priority has a lot of value to investors in adverse consequences.”
The financing was raised through a special purpose vehicle that will receive monthly fees from United, and the SPV will pass that cash onto the loan's investors.
"It was anything but a commoditised structured finance transaction," Minnis said. “If we had just applied traditional structured finance technology, it would have been dead on arrival."
The MileagePlus financing also included US$3.8bn in senior secured notes.
"We put structure around the loan and bond with amortisation to enhance this notion that you'd be first-priority, that you'd be deleveraging. You will have greater insulation, and the company, with more time and liquidity benefits, could either convert to more permanent financing through refinancing or pay down over a modest duration," Sterling said.
The United financing constitutes the largest-ever capital markets offering by an airline and it was quickly replicated by Spirit Airlines and Delta Air Lines.
“It was a remarkable outcome that changed the landscape of an industry at a time of material need,” said Sterling.
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