What happened

Shares of United Airlines Holdings (NASDAQ:UAL) gained 4.9% on Thursday as the company received a warm reception for its debt offering. The airlines are in a battle for their survival, and United's ability to raise additional cash goes a long way toward making sure it can outlast the COVID-19 pandemic.

So what

Airlines have been hit hard by COVID-19, which has caused travel demand to plummet. The airlines are expecting it to take years for travel to return to pre-pandemic levels, and rising case levels in a number of tourism hotbeds have stoked fears that the pandemic is resurgent, and a recovery could take even longer than expected.

A United Airlines 787 landing.

Image source: United Airlines.

The airlines in response are trying to fortify their cash reserves as much as they can to make sure they have the funds needed to outlast the pandemic. On Thursday United reportedly upped the size of a planned debt package to $6.8 billion from $5 billion due to the demand for the debt.

United last month was forced to pull a $2.25 billion note offering due to a lack of investor demand, but as we said at the time, that failure was likely due to the poor quality of the collateral it had offered. This time around the airline is using its MileagePlus frequent flyer program as collateral, and the reception has been much better.

Bloomberg said that United is now planning on selling $3.8 billion in senior-secured bonds, up from $3 billion, and has increased the leveraged loan portion of the offering by $1 billion to $3 billion.

Now what

All this new debt comes at a price: Even after the pandemic is long gone, airlines like United will have substantial interest payments as a legacy of COVID-19 that will eat into earnings for years to come. But for investors, the alternative -- an undercapitalized airline that could eventually need to file for bankruptcy -- is much worse.

Given the uncertainty surrounding the pandemic, no amount of cash is enough to declare United or any airline completely safe. But with $6.8 billion in added cash in the bank, the company's survival chances look a lot better now than they did two weeks ago. That's reason enough for investors to celebrate on Thursday.

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