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 Things are certainly tough in the airline business. With oil prices hovering around $70 a barrel and people traveling far less, getting debt financing has become increasingly difficult for airlines. Debt markets were so tight that in the $175 million debt offering of United Airlines' parent, UAL Corp. (NYSE:UAUA), the company was not only forced to pay a sky-high yield, but also to collateralize the bonds with spare parts for its planes. According to The Wall Street Journal, the bond offering carried a coupon of 12.75%, and sold at nearly a 10% discount to par, the yield to maturity was 17%. That is the highest of any high-yield issue since March 3. ... The appraised value of the spare parts, $583 million, is three times the value of the loan, and also happens to be larger than UAL's market capitalization. With the airline's market cap at only $459 million -- well below the value of the spare parts backing up the loan -- the offering demanded and received the steep risk premium, because, after all, it's a lot harder to cart away the thousands of plane parts than it is the actual plane. - George White See WSJ story
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