Originally Posted by
Excargodog
If you neglect the 11.5% annually you have been paying out in quarterly dividends. These were not zero coupon bonds.
More food for thought: Your logic MIGHT work if the airline involved could actually pay off the bonds as they mature, but the prospects of the smaller (shrink to profitability) airlines being able to do that is low. So the $1.5 billion that is owed THIS year will be rolled over into another bond issue that reflects AAs creditworthiness at THAT time, driving the interest rate even higher. Effectively, you wind up switching your credit card balance from one card to another, but your debt service just continues to skyrocket. If you can’t afford to pay a 12% coupon on your debt now it is ludicrous to believe your prospects will be improved by having to pay an even higher debt service later.
Yeah I was partially wrong. The coupon is 3.75% paid twice a year, not quarterly. But that's just hyperbolic talk about bonds. AA issued senior secured notes which needed collateral to be made. You can't collateralize bonds with other collateralized bonds, not how that works.