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Not looking good for United (Reuters)

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NEW YORK, June 29 (Reuters) - Bond investors are demanding
a high yield to take on even the secured debt of UAL Corp
(UAUA.O) as declining travel demand continues to hurt revenues
at the company, the parent of United Airlines, and raises the
risk its liquidity could come under stress.
United Airlines on Friday sold $175 million in senior notesbacked by its U.S. aircraft spare parts. The notes were pricedat 90 cents on the dollar to earn a yield of 17 percent,according to Thomson Reuters data. "The pricing indicates lack of investor interest andmanagement desperation," CreditSights analysts Roger King,Aidas Baublys and Brian Studioso said in a report on Monday. "Whether it was due to banker exuberance or companydesperation is unclear, but this type of issuance is frequentlyjust a few steps from the grave. It signifies that sources ofliquidity are up against a limit while investors have yet toperceive any rising tide of seasonal demand," they said. UAL denies that the pricing of the debt sale was out ofline with general market conditions. "The transaction was oversubscribed with terms that reflectthe transaction structure, the nature of the collateral usedand the tight credit market," said UAL spokesperson JeanMedina, in Chicago. The sale "will further boost our liquidity as we continueto take the right actions in response to the difficultenvironment, adjusting capacity and reducing our coststructure," she added. "We continue to take actions to raiseliquidity, having raised more than $500 million in the firstquarter alone." LIQUIDITY CONCERNS Concerns that UAL's liquidity could come under pressurehave increased as the outlook for travel demand remains bleakand the risk of a renewed surge in fuel prices remains a risk. Credit default swaps on UAL's debt are reflecting a highbankruptcy concern at 59 percent the sum insured as an upfrontcost, or $5.9 million to insure $10 million for five years, inaddition to annual payments of $500,000, according to data byMarkit. Fitch Ratings this month cut UAL's issuer credit rating twonotches to CCC, eight steps below investment grade and a deeplyspeculative grade. United could report substantially negative free cash flowfor the final three quarters of 2009, and the airline has $655million of debt and capital leases maturing in the last threequarters of the year, Fitch said. "Even if revenue trends stabilize late in the year, theairline faces over $1 billion in scheduled debt and capitallease principal payments next year, raising the probability ofa deepening liquidity crisis," Fitch added. Management has indicated that an estimated $1.7 billion inremaining unencumbered assets could be used to improveliquidity in the future, though much of these assets are olderaircraft and engines that may not be easily monetized, Fitchsaid. "United may have difficulty raising a large amount of newcapital over the near term as credit market conditions remainvery tight," Fitch said. Meanwhile the ability of bondholders to obtain the partsbacking the recent debt sale in the event of bankruptcy may bechallenged, CreditSights said. "The history of aircraft parts collateral in bankruptcy hasbeen spotty," and bondholders in a past case involving thenow-defunct TWA airline were wiped out when a bankruptcy judgedid not want to deal with commingled inventory, the analystssaid. "Given the inherent limitations of spare parts collateral,bondholders are betting their principal investment that theissuer will not default over the next three years. That doesnot seem to be a good bet right now," CreditSights said. (Editing by James Dalgleish
United is a roach. You can't kill it. It's not going anywhere.
To paraphrase what has been said of banks:

"If an airlines' too big to fail, it's too big".

I predict the return of regulation. Soon.

Failure to properly manage their business, their employees future, corporate greed and lack of fiscal responsibility on the part of airlines has attracted the attention and ire of the public and regulators.

Your thoughts, anyone?

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