Airline Pilot Central Forums (https://www.airlinepilotforums.com/)

- American (https://www.airlinepilotforums.com/american/)

- - Bankruptcy (https://www.airlinepilotforums.com/american/132024-bankruptcy.html)

Quote:

Originally Posted by victormike (Post 3204185)

Discuss:
CNBC: American Airlines plans $5 billion bond sale backed by frequent flyer program to pay back other debt- March 8, 2021

https://www.cnbc.com/2021/03/08/amer...r-program.html

Sounds like AA doesn't like the government's money. Do we have any assets left to leverage?

Is this a good thing though? I am not nearly smart enough for this kind of high level finance, hence why I pay a guy, but it would seem to me that borrowing 5 Billion to pay back 500 million seems odd. I mean I understand they will use that money to stay afloat, but a company already leading the pack in debt borrowing even more seems unsustainable.

Quote:

Originally Posted by Cyio (Post 3204197)

See my edit above^ I read the filing and original loan terms with the treasury. I think they want easier money for their slush fund. As long as the checks keep clearing ill keep showing up.

Why would somebody sell bonds that last required a 12% effective coupon to move (11.5% coupon but they sold below par in June) to refinance a government loan at LIBOR (currently about 1%) plus 3.5%.

https://i.ibb.co/kgSXVCp/5-B7-B1-E4-...-B388-C616.jpg

Either you believe there is going to be massive inflation driving the inflation rate up to five or six times what it is now (possible, but unlikely in as short a period as five years) or you REALLY want to get out from under the executive compensation limits under the CARES Act.

Quote:

Executive Compensation Limits

Section 4004 executive compensation limits begin on the execution date of a loan or loan guarantee, and they end one year after the loan or loan guarantee has been satisfied (the “restriction period”).

During the restriction period:

No officer or employee whose total compensation was more than $425,000 in 2019 (other than those employees whose compensation is determined by an existing collective bargaining agreement entered into before March 1, 2020) may receive:

Total compensation during any consecutive 12-month period that exceeds their total compensation received during calendar year 2019; or
Severance pay or other benefits upon termination of employment that exceeds twice (2x) their maximum total compensation received during calendar year 2019.

No officer or employee whose total compensation was more than $3 million in 2019 may receive:

In excess of $3 million; and
50 percent of the amount that their total compensation for calendar year 2019 exceeded $3 million. (For example, if total compensation is $4 million, the officer or employee may not receive more than $3.5 million — $3 million plus $500,000.)

“Total compensation” is defined in Section 4004(b) as “salary, bonuses, awards of stock, and other financial benefits provided by an eligible business to an officer or employee of the eligible business.”

On the good news front, Fitch isn’t contemplating further credit downgrades at present, although they just downgraded the senior secured debt already out there, which will drop its value in the secondary markets.

Quote:

RATING ACTION COMMENTARY

Fitch Affirms American Airlines at 'B-'; Removes Rating Watch Negative

Mon 08 Mar, 2021 - 8:54 AM ET

Fitch Ratings - Chicago - 08 Mar 2021: Fitch Ratings has affirmed American Airlines' Long-Term Issuer Default Rating (IDR) at 'B-' and has assigned a Negative Rating Outlook. The ratings have been removed from Rating Watch Negative. In addition, Fitch has downgraded American's existing senior secured debt ratings to 'B'/'RR3' from 'B+'/ 'RR2'.

The removal of the Negative Rating Watch follows several positive events since Fitch's prior review. Liquidity has been bolstered by an increased allocation under the government loan program (to be replaced by the loyalty program issuance) and a renewed payroll support program. Meanwhile, the rollout of multiple effective coronavirus vaccines has increased the likelihood of a meaningful rebound in air travel starting some time in 2021, lowering the likelihood that American will continue to burn cash for a prolonged period. Positive factors are tempered by air traffic that remains at low levels, which has driven down Fitch's expectations for passenger traffic for the year. The Negative Outlook reflects continued pressure on the airline industry and uncertainty around the pace of recovery.

The downgrade of American's senior secured debt to 'B'/'RR2' from 'B+'/'RR3' reflects the growing amount of senior secured debt in American's capital structure which may dilute recovery prospects in a distress scenario.

Quote:

Originally Posted by victormike (Post 3204199)

See my edit above^ I read the filing and original loan terms with the treasury. I think they want easier money for their slush fund. As long as the checks keep clearing ill keep showing up.

From previous experience with Bankruptcy, that's all you can do, along with preparing as best you can.

To this point, any AAG employed pilot (WO and Mainline) should prepare for the parent's BK trip. If it doesn't happen, well, all to the good that you didn't use your PACE plan. If it does, well, you're not living in some "this company will never lose money again" fantasy land.

Quote:

Originally Posted by Excargodog (Post 3204202)

This I don’t understand. Without the full terms I guess we really won’t have all the context. Pretty sure they are so confident they’ll make money hand over fist that they don’t want the restrictions. Bold move for management.

Does anyone else remember cringing hard during the state of the airline when we were told AA will never lose money again? Airline gods were like, ohh yeah.. Pandemic!

Quote:

Originally Posted by victormike (Post 3204217)

This I don’t understand. Without the full terms I guess we really won’t have all the context.

What part don’t you understand? Both the terms of the CARE program and the terms of any bond sale are all in the public domain.

Quote:

Pretty sure they are so confident they’ll make money hand over fist that they don’t want the restrictions. Bold move for management.

That seems a naive comment. They are selling bonds to raise liquidity, not to buy airplanes. And the CARE restrictions are against using company assets for stock buybacks and restrictions on executive compensation over $3 million as well as for restrictions on Golden parachutes for those leaving. If in fac they are floating a bond sale for the purpose of being able to avoid those restrictions a year later, it would not convince me they believe they will be making money “hand over fist”.
YMMV.

Do we have a new timeline on when AA will declare bankruptcy?

I am shocked that 70% of the voters think they are going file. AA will do fine. I guess the "yes" group is either joking or part of that group that insists Boeing took COVID Bailout money (they didn't).

Quote:

Originally Posted by Excargodog (Post 3204272)

What part don’t you understand? Both the terms of the CARE program and the terms of any bond sale are all in the public domain.

That seems a naive comment. They are selling bonds to raise liquidity, not to buy airplanes. And the CARE restrictions are against using company assets for stock buybacks and restrictions on executive compensation over $3 million as well as for restrictions on Golden parachutes for those leaving. If in fac they are floating a bond sale for the purpose of being able to avoid those restrictions a year later, it would not convince me they believe they will be making money “hand over fist”.
YMMV.

First: They didn't release the prospectus, just the press release. Find the prospectus if you think I'm wrong.

Second: Just because you're a debbie downer doesn't mean I'm naive. They are swapping lower interest for higher interest liquidity to have less restrictions and no government ownership of the group's stock. I even quoted the treasury terms but I guess you didn't see that. You are focused on the part about how management is going to make it big and you will be broke. The picture is bigger than that.

Terms for cares: "The transaction agreement includes covenants by the Company to comply with certain restrictions on employee compensation, stock repurchases, dividends, and reductions in employment levels, as required by the CARES Act. Treasury will receive warrants to purchase common stock equal to 10% of the total loan amount drawn."

Quote:

Originally Posted by Texasbound (Post 3204276)

Bankruptcy is done to preserve cash and have as much of it available post BK. Perhaps they are trying to raise as much cash now, so when they file it will be there to come out of it.

Quote:

Originally Posted by Texasbound (Post 3204276)

I am shocked that 70% of the voters think they are going file. AA will do fine.

It's not exactly a scientific poll :rolleyes: