Inflight internet company Gogo had to pay up to return to the junk bond market after unexpectedly cancelling a deal that had already priced in May. This time around, the company had to offer investors a yield of 12.5% on a US $525m six-year non-call three bond, which will repay outstanding debt and finance the rollout of its next-generation technology.
That is wider than the 12% level at which an identical bond priced in May before Gogo took the highly unusual step of cancelling it ahead of settlement.
Gogo said it scrapped that issue because it had received a proposal from a major airline to provide services on a significant portion of its fleet.
That led some investors to believe Gogo might try to re-market the deal later to achieve better pricing on the bond, though a banker argued that companies would rarely take such an extreme step unless they expected some negative news.
Investors eventually found little reason to cheer.
In an SEC filing on June 3, Gogo disclosed that a day after pulling its bond sale it had reached had given American Airlines, one of its biggest clients, an option to cancel service on 550 aircraft currently under contract.
The agreement put an end to bitter negotiations between the two companies and included a commitment from American to buy equipment to transition 140 of its aircraft fleet to Gogo's new technology.
But the same day, competitor ViaSat announced it had been selected by American to provide internet on its new Boeing 737 MAX fleet.