Originally Posted by
rickair7777
Broadly speaking, all bonds can be placed in one of two categories:
- Investment grade bonds are issued by low-risk to medium-risk lenders. A bond rating on investment-grade debt can range from AAA to BBB. These highly-rated bonds pay relatively low interest because their issuers don't have to pay more. Investors looking for an absolutely sound place to put their money will buy them.
- Junk bonds are riskier. They will be rated BB or lower by Standard & Poor's and Ba or lower by Moody's. These lower-rated bonds pay a higher yield to investors. Their buyers are getting a bigger reward for taking a greater risk.
Yeah, and S&P, Fitch, and Moody all define things a little fifferently, but except for Alaska, I think all major airline bonds are requiring a 10% yield right now. And on the secondary market, the existing tranches of bonds sold at lower rates 4-5 years ago are going down, effectively making them command a higher coupon, although those sites are all payroll protected.
The point though, is that airlines are ALREADY paying huge amounts in debt service and will be paying even more in refinancing. This summer AA did a bond sale for $2.5 BILLION at 12%. That one transaction alone means an annual debt service of $300 million. And how much OTHER debt does AA have?
We’ll know in another week, but it has to be north of $35 Billion...