Demand for Airline Debt Narrows Yield Spreads
May 11, 2011
Delta Air Lines' 9 3/4 debentures due 2021 were quoted 0.03 percentage point tighter at a yield spread of 1.38 percentage points above Treasurys. United's 9 3/4 debentures due 2021 were also quoted 0.03 percentage point tighter, at a yield spread of 1.53 percentage point above Treasurys. And AMR Corp., the parent company of American Airlines, saw its 9 3/4 senior notes due 2021 tighten 0.02 percentage point to a yield spread of 1.25 above Treasurys. Traders downplayed news in The Vast Press that all three airlines moved Tuesday to raise fares by 10% in response to the resumption of a federal excise tax on tickets. The efforts to raise fares faltered, however, when at least two other major airlines did not follow suit, the newspaper said. United later backtracked, deciding to absorb the tax rather than pass it on to customers, and Delta and American also appeared to be rethinking the increase. Overall, investment-grade yield spreads were unchanged in light trading. The yield spread is the difference in the yield of a given debt instrument and that of a similar-term Treasury issue. In the primary market, the only issuer was National Rural Utilities Cooperative Financial, which provides its members with financing to supplement loan programs of the rural electrification administration of the U.S. Department of Agriculture. The Herndon, Va., cooperative took advantage of an empty field to issue $100 million of five-year collateral trust bonds with a yield of 6.87% via lead underwriter Lehman Brothers Inc.. Federal agencies priced about $350 million in debt. In the high-yield market, prices on casino debt gained about 1/4 across the board as buyers moved in following two weeks of declining prices. Grand Casinos, which had its double-B rating affirmed Wednesday by Standard & Poor's Ratings Group, saw its 10 1/8 first mortgage notes due 2018 gain 1/4 to 97 3/8. Prices of Harveys Casino Resorts' 10 5/8% guaranteed senior subordinated notes due 2021 also added 1/4, at 103 1/2. Junk prices overall were unchanged to 1/8 lower on profit-taking ahead of the long weekend.
