American Airlines Unveils $7.5B Debt Sale to Pay Back Loans

American Airlines is offering $7.5 billion of debt, secured against the carrier's loyalty program.
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American Airlines  (AAL) - Get Report said Monday that it would sell $7.5 billion in bonds and leveraged loans backed by its frequent-flyer program, using the funds to repay U.S. government loans that helped the carrier operate during the pandemic. 

Shares of the Fort Worth, Texas, company at last check were 4.6% higher at $21.40.

American Airlines said in a statement that it was marketing two $2.5 billion series of notes, maturing in 2026 and 2029, and a term-loan credit facility of the same amount due in 2028.

The new debt is secured against the company’s loyalty program. It will help refinance American’s $7.5 billion Treasury loan, of which $550 million has been drawn to date, the company said.

Early pricing discussions are in the low-to-mid 6% range for the five-year notes, and the mid-to-high 6% range for the eight-year portion, Bloomberg reported, citing people familiar with the matter. 

Initial pricing on the loan is being discussed at a spread of 5 to 5 1/4 percentage points over the London interbank offered rate, plus an original-issue discount of 98 cents on the dollar with a 1% Libor floor, the people added.

American chose to refinance the Treasury loan with debt in an amortizing structure, which enables the company to pay back it in pieces leading up to maturity rather than all at once. 

American’s AAdvantage loyalty program has an assessed value of $18 billion to $30 billion, Bloomberg reported. The airline mortgaged its brand with $1.2 billion in committed financing from Goldman Sachs in July.

American said it had about $3.6 billion in unencumbered assets and additional first-lien debt capacity of $7.2 billion.

The company's overall cost of debt is around 4%, and it has an estimated $15 billion of liquidity.

Prior to the pandemic, American said it focused on maintaining at least $70 billion in liquidity, and it entered March 2020 with $8.3 billion of liquidity.