American braces balance sheet with $3.5b in financing

Bloomberg

American Airlines Group Inc braced its balance sheet with $3.5 billion in new financing,
diverging from its recent reliance on federal aid as the coronavirus pandemic suppresses travel demand.
The carrier is selling $750 million of shares and the same amount of senior convertible notes due in 2025, American said in a statement, confirming an earlier Bloomberg News
report. In addition, the carrier will offer $1.5 billion in senior
secured notes and said it will enter into a $500 million term loan facility.
American’s actions show the broad range of tools airlines are using to bolster balance sheets amid a hesitant return to flying that for now is led largely by leisure travellers anxious to escape months of confinement. While carriers have resumed some of the domestic flights slashed when the virus hurt travel demand in late March, a full recovery is expected to take years. The largest US carriers continue to burn through as much as $45 million daily as demand sags.
With the equity offering, Fort Worth, Texas-based American joins Southwest Airlines Co, which raised about $4 billion with an April sale of 70 million shares and $2 billion in convertible notes due in 2025. United Airlines Holdings Inc raised more than $1 billion in the industry’s first share sale during the coronavirus crisis.
Goldman Sachs, Citigroup, BofA Securities and JPMorgan are jointly running the stock and notes offerings for American. The carrier used a pool of slots, gates and routes in various countries, including the US, China, Japan, Australia and South America as collateral for the bonds and term loan.
The junk bonds were said to carry a yield of 11% in discussions last week ahead of the offering, Bloomberg News reported on June 19. Final terms are subject to market conditions and other factors, American said. Part of the proceeds from the offering and loan will be used to refinance a $1 billion, 364-day financing the airline took out on March 18. The new $500 million loan, which will close with the bond offering, is due in 2024.
American will grant underwriters up to $112.5 million worth of additional shares and the same amount in added convertible notes depending on demand, the carrier said.
Carriers are pulling out all the stops to make sure they’re positioned for a fundamental change in their business.