Originally Posted by
victormike
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.
Nope. Generally you collateralize bonds with things like aircraft, which even if originally new are used aircraft when the bonds mature and have to be redeemed. And if you have to refinance them they have now depreciated in value so you either need more of them or you pay a higher coupon.
the fact is that debt is a cost - you are renting that money - and if you can gainfully employ it - like to buy aircraft you are flying at a net profit - that’s Ok despite the debt service. But those collateralized aircraft you park are costing you even if you nominally own them.