Houston set to price high-yield United Airlines deal Tuesday

Houston, Texas is set to come to market Tuesday with $256 million of junk-rated United Airlines bonds hoping to find a friendly market after twice postponing the borrowing.

The city, which issues the bonds on behalf of the airline, pulled the deal last November due to apparent weak investor interest and again in early March amid geopolitical volatility and rising oil prices.

This time around the credit is likely to find receptive investors, buysiders said.

"The high-yield market is starved for paper right now," said Justin Horowitz, senior portfolio manager at Birch Creek Capital.

"Some of the more speculative and unique transactions are still requiring lengthy negotiations with bondholders over deal terms in order to inch across the finish line, but for the most part, the typical run of the mill deal is pricing to incredibly strong demand and in some cases immediately trading up 30-50bps in the secondary as investors clamor to get put cash to work."

The United transaction features two issues of airport system special facilities revenue bonds: $106 million of ground services equipment facility project bonds and $150 million of catering operations facility project bonds. Once completed, the catering operations will be the largest kitchen in United's network, according to the road show presentation for the transaction.

The original November financing featured larger tranches ? $220 million and $180 million ? as well as a third piece, $277 million of revenue refunding bonds that successfully priced and enjoyed strong demand.

"Airline companies have been active in the municipal bond market for a long time, so they are known quantities to investors," Dan Solender, partner and director of tax free fixed income at Lord Abbett, said.

"They have more volatility than a lot of traditional municipal bond credits due to their dependence upon things like oil prices and consumer spending. Over the past couple decades, they have found ways to diversity their methods of charging to get more revenue, so they are in a better position than they were years ago," Solender said.

"Demand for municipal bond products has been strong particularly for the high yield sector so that should provide support for the deal if it is priced appropriately. Even though there has been a good amount of new issue supply this year, high yield supply has not been as high so that should be supportive as well."

United is the largest airline at Houston's George Bush Intercontinental Airport, responsible for 73% of the total enplaned passengers in 2025 when including United's regional carriers, according to the road show.

The bonds are secured by rent paid by United to the city for use of leased premises at the airport good for 30 years after the issuance of the debt.

S&P Global Ratings rates the bonds at the same level as its BB-plus issuer credit rating on United.

"While not expected, the bondholder claims would become unsecured if the lease is terminated prior to maturity," S&P said in a May 6 rating report. "However, United unconditionally guarantees the bonds and would remain obligated to continue to service its interest and principal payment obligations."

Bank of America Securities is lead underwriter with six additional firms rounding out the team. Bracewell is tax counsel and bond counsel. Masterson Advisors LLC and Knight & Day Group LLC are co-municipal advisors.