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Law360 (April 22, 2020, 7:30 PM EDT) -- United Airlines is selling $1 billion worth of common stock with help from Sidley Austin LLP as COVID-19 continues to batter the airline industry, according to documents filed Wednesday with the U.S. Securities and Exchange Commission.
Illinois-based United Airlines Holdings Inc. said it is offering 39.25 million shares at $26.50 apiece, slightly below their $27.30 opening price on Wednesday. The additional cash will be used for "general corporate purposes" to help the company weather the effects of the coronavirus pandemic, the filing said. United's stock has dropped off precipitously in recent months, falling from $82.20 on Feb. 12 as demand for flights has plunged.
"The company has experienced, and continues to experience, a material decline in demand for both international and domestic travel resulting from the spread of COVID-19," the filing said.
The company said it's operating at 20% capacity for April and expects to cut back to 10% capacity in May. A similar cut in June is likely, the filing said. United disclosed Monday that its pre-tax losses for the first quarter were about $2.1 billion.
The offering's underwriters have a 30-day option to purchase up to roughly 3.9 million additional shares, the SEC filing said.
United is taking a number of steps to quickly shore up cash. It has entered into $2.75 billion in loan facilities and inked a sale and lease arrangement to finance 22 aircraft, among other measures, the filing said.
United on Friday also applied for a $4.5 billion loan from the federal loan program set up by the Coronavirus Aid, Relief, and Economic Security Act. The loan would require United to issue warrants to the U.S. Department of Treasury entitling the agency to purchase United's common stock for $31.50 apiece.
United announced on April 15 that it also expects to receive about $5 billion from the CARES Act's payroll support program. Those funds will go toward paying salaries and benefits for United employees. The $5 billion will likely be split between a $3.5 billion grant and a $1.5 billion low-interest loan, the announcement said, and the deal will also see United issue about 4.6 million warrants to the Treasury Department.
The federal funds have strings attached: United would face restrictions on dividends, buybacks and executive compensation and would have to maintain certain employment levels through the end of September 2020, among other conditions, the filing said.
Under the circumstances, the company could have trouble raising additional financing on favorable terms, the filing noted.
"The company's substantial level of indebtedness, particularly following the additional liquidity transactions completed and contemplated in response to the impacts of COVID-19, and noninvestment grade credit rating … may make it difficult for the company to raise additional capital if needed to meet its liquidity needs on acceptable terms, or at all," the filing said.
The airline industry as a whole has been hard-hit by the pandemic and accompanying travel restrictions. European airline Norwegian Air moved four affiliates into bankruptcy on Monday, and a regional Alaskan airline operator filed for Chapter 11 protection in early April, saying COVID-19 had pushed it into insolvency.
A number of airline operators, including United, have also taken heat over their ticket refund policies. Delta Air Lines was hit with a proposed class action on Friday that accuses the company of wrongly offering rebookings or travel vouchers instead of a ticket refund after canceling thousands of flights before and during the pandemic. Southwest Airlines Co. was hit with similar charges on April 14, and United was sued on April 6.
Representatives for United did not immediately respond to requests for comment on Wednesday.
United is represented by a Sidley Austin LLP team including partners Kevin Lewis, Lindsey Smith, Gary Gerstman and Suresh Advani, counsel Kenny Terrero and associate Kayleigh McNelis.
The offering's underwriters are Morgan Stanley & Co. LLC and Barclays Capital Inc.
The underwriters are represented by a Milbank LLP team including capital markets partner Brett Nadritch, transportation and space partner Jim Pascale, capital markets special counsel Lesley Janzen and associates Alex Youssef, Lauren Salter and Greg Arpino.
--Additional reporting by Vince Sullivan, Craig Clough, Linda Chiem and Vince Sullivan. Editing by Janice Carter Brown.
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