The debt is in bonds that have maturity dates when they MUST be paid off. American only has to pay the coupon on them now - which was probably about 3.5%. But eventually they need to pay the face value back to the bond owners. If American has the free cash to pay them off at that time - no problem. And currently they do have some excess liquidity that may be adequate for their near term needs. But they cannot afford to take the liquidity too low. Some of those bonds were sold with provisions giving the buyers the right to call for them to be redeemed immediately if liquidity goes below certain levels and some of their liquidity is itself lines of credit with variable interest rates. So it is likely that some - likely most - of those bonds that were sold at the exceedingly low coupon rate will have to be paid off by selling new bonds at current prices and coupons - which for b- rated bonds are pretty bad right now. They will also be using used aircraft as collateral, rather than new aircraft which was the case when the original bonds were sold which will tend to drive up rates as well.

I’m not criticizing AA management and certainly not the pilot group. Airlines need a lot of capital and new aircraft generally are more fuel efficient and cheaper to maintain than older aircraft and much of this debt went to buy aircraft and doing it back when rates were low was smart business. They couldn’t have anticipated COVID. But because of COVID (and the in my opinion excessive governmental restrictions they justified by COVID, AA didn’t get the return on investment they would have and should have gotten from taking on this debt. PSP was great for pilots - avoiding furloughs and all - but no one was paying the airlines for the profit they WOULD have made or paying their non payroll costs like debt service and they all took a hit. Not AA’s fault, they couldn’t have predicted COVID or the over reaction to it, it just hurt them more because of the timing of their fleet buy. But for COVID, they’d probably be the best off of the legacies right now.

But COVID did happen and if the free cash isn’t there to pay the PRINCIPAL then they’ll have to refinance and currently the rates for new junk debt are likely to be three times what they originally paid. That’s no exaggeration. Heck, Credit Suisse may fold because they underwrote a b-rated finance package that no one would buy.

https://www.reuters.com/business/fin...ce-2022-09-21/
https://www.wsj.com/livecoverage/sto...aAVE9OYzyohpQY

And Credit Suisse finances about $1.5 TRILLION in assets.

Now these interest rates basically are Fed driven, but the Fed is on record saying they are going to continue to RAISE rates until they squeeze inflation down to 2%, so there is little prospect for immediate relief.

https://www.bankrate.com/banking/fed...rates-in-2022/