Written by admin on August 6th, 2009
American Airlines Has A Big Debt Sale
The world’s second largest air carrier, American Airlines, sold $276.4 million in debt backed by aircraft in order to accumulate a stockpile of cash before the slow winter travel season takes hold across the United States.
It comes in the form of 13% pass-through certificates that pay a higher interest rate than the $520.1 million sale the airline completed in June. These certificates would be due in 2016. The ten-year debt, American’s first such proposal since 2005, was priced at 10.375% and supported by newer aircraft.
The newest sale ended up being 20% smaller than what was initially outlined in the initial offering memorandum released on July 20. In the memo, American execs said they were seeking as much as $344.1 million in a private debt placement.
A number of airlines besides American are attempting to acquire more cash as a result of recession-slowed travel during the second quarter of 2009, a period that is usually the busiest for U.S. air carriers. AMR, American’s parent company, reported a 21% drop in revenue on as well as a loss excluding one-time items totally $319 million on July 15.
Recently, S&P placed American’s debt under review for a potential downgrade, citing various issues about liquidity and revenue generation. The airline had $2.8 billion in unrestricted cash back on June 30, but the S&P suggested that this would likely shrink over the rest of the year. American also had cash totally $460 million set aside for other specified uses.
Based on data from the memorandum, the debt offering was made possible by using ten Boeing 737-800s delivered in 1999; three Boeing 767- 300ERs from 1998 and 1999; and two 777-200s also delivered in 1999. The airline removed on 737-800 and two 767-300ERs from the recent sale.
The total appraisal value on the twelve airplanes was more than $425.2 million. The loan-to-value ratio was 65% in both the initial plan and in the subsequent offering. The ratio was 48% in American’s June debt sale.
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