Originally Posted by
DoNoHarm
Was that the interest payment that was actually due, or did they pay future interest now? (I know the answer to this, do you?).
It is easy to move payments between quarters to show either massive losses, massive gains, or what is essentially breaking even. That is what you see here.
That is not the interest that is due every quarter, it shows the interest that they paid this quarter. The actual interest could be significantly more or less than this.
Oh, and what happens if you pay the interest for the next several quarters now, and then pay the principal early?
if you look at the interest paid for years back, you can see the continuing increase. Most of it is the half yearly interest payments required on the outstanding bonds. Certainly one CAN prepay interest, but why would they when they’ve been struggling to maintain adequate lquidity to the point of even selling new bonds at a discount to par that gave them a real interest rate of 12%
https://www.forbes.com/sites/danielr...h=6df5f64027b6
So why was American – already hamstrung by the largest amount of debt in the industry - able to attract so many bidders for its junk-rated five-year bonds? There are two reasons:
- The airline reportedly agreed to pay a jaw-dropping all-in yield of 12 percent on those bonds. Delta recently sold $1.25 billion in bonds carrying a painful 7.375 percent yield. Meanwhile United withdrew a $5 billion bond sale proposal when investors demanded yields around 11.5 percent, but then came back last week to sell $6 billion in bonds at yields of around 7.5 percent. So American’s willingness to pay interest rates so staggeringly high probably was enough to entice many investors into shouldering American’s rather substantial risk of default. That the bonds are being backed by lots of leased airport gates and facilities (including all of American’s huge terminal at John F. Kennedy Airport in New York) plus valuable landing rights at a number of foreign airports, made it so tempting that lots of bond buyers who otherwise would have walked away felt pretty secure about buying bonds from a sick puppy like American.
So no, the amount of interest they are paying out currently seems entirely in keeping with the debt load and debt service they have. If you have other FACTS to back up that it isn’t, please present them. Insider information is always nice.
Now whether you are ABLE to pay the principal early depends upon two things, whether or not the bonds are indeed callable (some are and some aren’t, and generally you have to pay at least a few basis points of extra interest if they are) and whether or not you actually have the liquidity to call them. Now with $18 Billion in liquidity it certainly might be advantageous to call the 12% junk bonds IF they are callable and IF they don’t have an ugly prepayment penalty, but I’m unaware of their exact terms. But even if so, that prepayment has not YET occurred - at least not in the third quarter report. Those are the 11.75 senior secured notes in the 3rd quarter statement, which are actually paying the equivalent of 12% since they sold below par. And yet since they clearly haven’t paid off those junk bonds they are either not callable or management is unwilling to go below the amount of liquidity they have now in the expectation they’ll need every bit of it to meet future obligations and day to day operating needs and the next desperate step after selling 12% junk bonds is generally taking out loans from Guido ‘the kneecapper’ Bertoloni on the street corner at 10% interest a week.
At least that’s my interpretation of the situation. But like I said, if you have some super secret insider insight that you want to dish, lay it out. We’d all be glad to see it.