At a little-known cargo airline that handles shipments for United Parcel Service Inc. and Amazon.com Inc., business is booming.

With passenger carriers forced to cut most of their freight capacity during the pandemic, seven-year-old Western Global Airlines LLC has picked up new orders amid a surge in online shopping.

Now, it’s benefiting from another big tailwind: the credit rally sparked by the Federal Reserve’s unprecedented backstop.

The Estero, Florida-based carrier is borrowing hundreds of millions of dollars from the junk-bond market to fund a stock program that will give it a sizable tax break, hand the founders a large payout and potentially keep its workforce union-free.

Companies have been issuing debt at a record pace since the Fed announced a series of measures in March to keep the economy going. While that has provided much-needed liquidity to struggling businesses, the rally has been so broad-based that it has also allowed less-impacted companies to sell debt to fund payouts to shareholders.

Western Global is looking to raise $410 million through its first ever junk bond offering as part of a plan to sell a minority stake to employees. The deal will see founder Jim Neff and other existing shareholders sell as much as 49% of the company to the employee stock ownership plan.

“We believe that our employees are the best strategic partners and view the ESOP as a win-win for both the employees and the company,” a representative said in response to requests for comment. As essential transportation, the airline also experienced substantially higher operating costs in the Covid-19 environment, the company representative said.

Tax Benefits

Under the plan, the airline will lend proceeds from the bond offering to a newly set-up ESOP, which will use the funds to purchase the stake. The plan will use annual contributions it receives from the company to repay the debt over time.

Western Global expects to realize significant tax benefits from the arrangement as it will be able to deduct interest on the debt and contributions made to the plan, according to people with knowledge of the company’s presentation to investors. The deal is also expected to dissuade workers from unionizing, preserving one of Western Global’s key advantages versus competitors, the people said, asking not to be named when discussing confidential information.

The company began sounding out potential investors for the five-year bonds last week at a yield in the 8.25% to 8.5% range, some of the people said. In a sign of tepid demand from potential investors, the range was revised on Tuesday to 8.75% to 9%. Western Global also shifted $10 million to a separate revolver, reducing the offering’s original $420 million size.

A representative for Royal Bank of Canada, which is leading the bond sale, declined to comment.

Demand Surge

While Western Global and other cargo carriers are enjoying an increase in demand, passenger airlines have had to borrow billions of dollars and sell stock, diluting existing holders, to shore up their cash reserves as the pandemic wreaks havoc across the travel industry.

Analysts at S&P Global Ratings said in late July that they expect Western Global’s revenue to jump by more than 90% this year thanks to higher demand for cargo shipments and less capacity from passenger airlines during the pandemic.

UPS is Western Global’s largest customer, accounting for around 24% of revenue in the first six months of the year, the airline said in documents shared with potential investors. Amazon, which only became a customer this year, and the U.S. Department of Defense, which approved the company as a contractor in 2016, made up around 16% and 14% respectively, the documents show.

The airline transports cargo for Amazon from Hong Kong to Los Angeles three times a week, and recently agreed an extension of the service through the year end, according to the documents shared with investors. The company has 19 aircraft, with 14 in service, and has flown to more than 350 airports in 134 countries, the documents show.

Western Global is also benefiting from some of the stimulus measures approved by the U.S. Government as part of the Cares Act. It received an $8.2 million loan through the Paycheck Protection Program and was granted $34.8 million of additional payroll assistance through a separate program the U.S. Treasury established for the airline industry, according to the documents.

The company owns all of the planes it operates and takes care of their maintenance directly. In recent quarters, it has focused on developing strong relationships with blue-chip customers and on expanding its long-haul capacity, particularly in and out of China.