Originally Posted by
El Peso
Instead or reading through what this idiot Excargodog keeps posting links to (like we don’t know that interest rates are on the rise) I think I’ll listen to our CFO instead.
Q. Can you refinance your debt with interest rates rising?
A. We’re in really good shape that we don’t have any debt that has come due. We paid off the $750 million unsecured (senior notes that matured in June). Our next big payment is a $1.2 billion term loan (for work at Reagan National and LaGuardia airports) that comes due at the end of next year. The second thing we have to do is finance aircraft. Every aircraft we have is financed through the end of the third quarter. We’re working hard to finance the back half of the year, and there are a lot of good proposals out there, even in a rising interest environment.
Q. Where do you find sources for financing planes?
A. We can do commercial banks. We can do market EETCs (publicly traded securities called enhanced equipment trust certificates). The market for EETCs is open still right now. It’s probably at 100 or 200 basis points bigger than what we have done in the past, but that’s still very attractive financing in this environment.
Q. Is an equity raise on the table?
A. It is not on the table right now. We have enough liquidity to make it through any downturn.
Q. What about share repurchases when the prohibition (a condition of federal pandemic aid) expires Sept. 30?
A. There is no plan to do any share repurchases. All of our excess liquidity will go to pay off debt.
Q. How would a recession change how you manage American’s finances?
A. If it does impact revenues, we would hold on to liquidity longer than than we have. It doesn’t mean that we’re not going to hit our $15 billion number (the target for debt reduction by the end of 2025). It might mean that we don’t accelerate paydown of that debt. But I’m fully confident with the liquidity we have at $15.6 billion that if there is a recessionary environment, that we will be able to withstand anything like that.
And that Aug 8 opinion of Derek Kerr was the opinion of the consortium of those commercial banks that put together the Citrix deal when they put it together back in the Spring. They lost $600 million plus on the deal and the borrower still had to pay 10% on the deal. This isn’t about American in particular, it is about any company with junk-rated credit. Any loan coming due or bonds maturing - many of which were originally financed at 3-4% when the Fed was literally charging NO interest, are going to have to be completely paid off or refinanced at whatever rates are then current.
The most recent markers we have are the Citrix deal at 10% coupon and another deal that fell through because the borrower couldn’t afford an 11% coupon. That is the current baseline, it’s changed a lot in the last six weeks.
Selected individual corporate junk bonds now look attractive. American Airlines has an issue that yields 8% and is backed by its key mileage program.
DANIEL SLIM/AFP/GETTY IMAGES
High-yield bonds are finally living up to their name after the broad selloff in fixed-income markets this year.
Better known as junk, the $1.5 trillion sector looks appealing, as yields have risen to an average of 8.8% from 4.4% at the start of 2022, according to the ICE BofA US High Yield Index. Junk debt offers an alternative—or supplement—to stocks