United deal flies in US high-grade market

Mon Mar 24, 2014 4:52pm EDT

Led by Citigroup, Credit Suisse, Deutsche Bank and Morgan Stanley, the deal was split into two tranches, a USD736.647m A-/A rated Class A 4.00% 12-year maturing in April 2026, and a USD212.812m 4.75% BB+ rated seven-year maturing April 2022.

Bookrunners were able to shave about 25bp off the initial price thoughts on both tranches to price at 4.00% for the A and 4.75% for the B tranche after attracting USD4.3bn of demand.

The A Class notes got USD2.7bn of that.

Bankers are hoping the UAL deal will be followed by another USD7bn worth of EETCs this year from US and non-US carriers alike.

The structure provides cost-effective forward funding for aircraft. The planes bought with the proceeds are placed in a special purpose vehicle as collateral for the notes, and are ring-fenced in case of bankruptcy.

Investors are attracted to EETCs because of the relatively predictable returns as well as the assets that can be repossessed in case of insolvency or default.

The new UAL deal will be backed by the aircraft they plan to buy with the proceeds in 2014. They include 13 Boeing B737-900ER aircraft, two Boeing B787-8s, one Boeing B787-9 and nine Embraer ERJ 175LRs.

Comparables included UAL's Class A 4.30% 2025s trading at 3.92% and its Class B 5.375% 2021s, yielding 4.75%.

Using those comps the Class A tranche came flat to secondaries once an extra 10bp for the difference in average life between the two is added to the 3.92%.

The Class B tranche appeared to price about 20bp through its comp - the 5.327% 2021s yielding 4.75% - after adding 23bp for curve adjustment between the average life of the old and new notes.

The average life on the Class A tranche is 8.8 years and 5.9 years on the Class B.

Like other EETCs, the deal has a liquidity facility - in this case provided by CA-CIB - which covers up to three semi-annual interest payments. That helps boost the rating of the product.

UAL's Class A was the only countable investment-grade tranche.

Split rated SLM Corp (Ba1/BBB-/BB+) was the only other issuer in an oddly quiet market, issuing US$850m of 6.25% 10-year notes maturing in March 2024. Led by Barclays, Credit Suisse and JP Morgan, the deal was run off investment-grade syndicate desks and priced at the wide end of intitial price thoughts of low 6s to 6.25%, despite a US$1.6bn order book. At 6.25% the deal offered 351.6bp over Treasuries, which compared with a G+310bp spread on its outstanding 5.5% 2023s, which were trading under par at $98.25 to yield 5.76%.

UNITED AIRLINES United Airlines Inc (UAL) announced a USD949.459m SEC registered 2-part EETC pass through certificates, Series 2014-1. Collateral: 13x 737-900ERs, 2x 787-8s, 1x 787-9 (May 2014 through March 2015 deliveries) & 9x ERJ-175LRs (March 2014 through March 2015 deliveries). The active bookrunners are Citigroup, Credit Suisse, Deutsche Bank and Morgan Stanley, with Barclays, Credit Agricole and Goldman Sachs as the passive bookrunners. UOP: to prefund the purchase by United of 16 new Boeing aircrafts and 9 new Embraer aircrafts. Settle: 4/7/2014. Class A: USD736.647m, rated A-/A, exp maturity 4/11/2026, legal final 10/11/2027, avg life 8.8yrs, initial/max LTV 55.1% - IPTs: 4.25% area Class B: USD212.812m, rated BB+/BB+, exp maturity 4/11/2022, legal final 10/11/2023. avg life 5.9yrs, initial/max LTV 71.0% - IPTs: low 5% area LAUNCH: USD949.459m 2-tranche total. Class A: USD736.647m at 4.0%, Class B: USD212.812m at 4.75% PRICED: USD949.459m 2-tranche total -CLASS A: USD736.647 4.00% (exp mat 4/11/2026). At 100, yld 4.00%. MWC+25bp -CLASS B: USD212.812m 4.75% (exp mat 4/11/2022). At 100, yld 4.75%. MWC+50bp BOOKS: USD2.7bn (Class A); USD1.7bn (Class B) COMPS: Class A: UAL 4.3% 2025 @ 3.92%.

Class B: 5.375% 2021 @4.75% NIC: Class A: flat (+10bp for curve adjustment)

Class B: negative 23bp (+23bp for curve adjustment)

NOT COUNTABLE

SLM CORP SLM Corp (SLM), Ba1/BBB-/BB+, announced a USD benchmark SEC registered 10-year (3/25/2024) senior unsecured note offering. The active bookrunners are Barclays, Credit Suisse, and JP Morgan. Co-managers are Bank of America, Royal Bank of Canada, Royal Bank of Scotland, Goldman Sachs and Deutsche Bank. UOP: GCP. Settle: T+3. IPTs: low 6s to 6.25% PRICE GUIDANCE: 6.25% area (+/ - 12.5bp) LAUNCH: USD850m at 6.25% PRICED: USD850m. Cpn 6.125%. Due 3/25/2024. Ip USD99.082. Yld 6.25%. T+351.6bp. Settlement date 3/27/2014. First pay 9/25/2014. BOOK: USD1.6bn COMP: SLM 5.5% 2024 $98.25 G+310. NIC: about 37bp (after adding 5bp for curve adjustment to G+310) (Reporting by Danielle Robinson; Editing by Marc Carnegie)

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