SOVEREIGN DEBT RESTRUCTURING | MASTERCLASS

A deep dive masterclass on sovereign debt restructuring, to be conducted virtually by Asian high yield bond expert Florian Schmidt.

30 June 2022 (Thu), 5pm Singapore/HK time

Fitch downgraded American carrier United Airlines to B+ from BB- and revised the outlook to stable. The rating action primarily focused on the slow pace of air traffic recovery and balance sheet pressure. While passenger traffic has improved on peak days, Fitch expects rolling seven-day averages to remain 50% or lower than 2019 levels. They note that United’s debt increased by $12.2bn in 2020, about 1.5x of 2019 EBITDAR and may increase further assuming United draws under the CARES Act loan. With this, gross leverage could remain near ~5x or more by end-2023, which they say is high for the BB category. Fitch also adds that United’s ability to reduce its gross debt will be limited over the next two years particularly since their fleet is older than its peers with an average age of 16 years. This is in comparison to 13.5 for Delta Airlines and 10.8 for American Airlines, which can lead to relatively high spending by United. Positives include improved cash burn and cost cutting efforts where annual operating costs are to reduce by $2bn. Fitch expects United to end 2021 with $17bn in liquidity that helps mitigate some risks.

United’s bonds were stable – its 4.875% 2025s were at 101.74, yielding 4.37%.

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