14 May 2020 by jbchevrel
Today UAL CDS is the worst performing CDS in HY space. HY was under decent pressure in general with risk selloff continuing until Europe afternoon. UAL CDS is wider by about 5 points to close at around 50% on our London close. The short end has been widening aggressively, such that 1y proba of default is now 62%. Overnight, a new lawsuit alleges United Airlines Holdings Inc. (UAL) violated the terms of receiving $5B in federal COVID-linked support when it informed employees they’ll be required to take 20D of unpaid leave. The proposed class action filed in federal court in Illinois says that by forcing management and administration employees to take 20D of unpaid leave from May 16 to Sep 30, United is in breach of its contract with the U.S. Treasury Department that secured funding to keep workers on the company’s payroll. UAL informed these non-union employees of the leave mandates May 4 by saying those in “non-operational” roles will begin working a four-day week and 30% of them will be laid off in Oct. The lawsuit seeks to recover compensation and damages for employee Kenneth England, and a class that if approved could expand to cover more than 10,000 eligible members. In cash space, the 4.875 Jan25s lost a bit more than 5 points, to 51 as at our London close. The CDS was wider to close around 50% consequently. UAL stock price is back at the lows, marking a -78% loss since the beginning of COVID impact on market (2/21). The market cap is now below $6B. UAL has around $5B cash reported on balance sheet (CCE & STI) as of Q1-20. It has reported a bit more than $23B of total debt. $1B matures 2020 $4B matures 2021. The airliner is expected to lose a total of more than $5B this year and not come back into profit territory before 2022. Revenue for this year is currently projected to be less than half of 2019’s. It was more than $40B in 2019, is expected at around $20B in 2020 and at around $30B in 2021. In the US, so far 93 US airlines have secured $12.4B of an available $25B in government funding for payrolls, each getting 70% in the form of grants that do not have to be repaid. In exchange for that, airliners who took the money agreed not to lay off staff or axe routes until Sep 30 although US volumes are -90% since Mar.