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Old 02-15-2021, 07:21 PM   #1  
Perennial Reserve
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Excargodog's Avatar
 
Joined APC: Jan 2018
Posts: 6,150
Default I donít get it...

American is looking at refinancing the low interest loan they got from the federal government:



The thing is, the government loan is at a rate that canít go higher than the LIBOR rate - currently just under 1% per year - plus a max of 3.75%. Now Iíll grant you that 4.75% is not a great rate (I refinanced my home mortgage for considerably less than that) but the last time AA went to the market for cash their $2.5 billion junk bond offering was at 11.75% and the bonds didnít even sell for par, eventually commanding a 12% coupon.

https://www.forbes.com/sites/danielr...h=e21324c27b65

So does anyone know what Iím missing here? Are the CARES terms for a loan so onerous that they are actually going to refinance at a much higher rate?

Can this all be about senior management compensation limits.

Quote:
SECTION 10.05 Limitations on Certain Compensation.
(a) Beginning on the Closing Date, and ending on the date that is one (1) year after the date on which the Loans are no longer outstanding, each Borrower Air Carrier and its Affiliates shall not pay any of each Borrower Air Carrierís Corporate Officers or Employees whose Total Compensation exceeded $425,000 in calendar year 2019 or the Subsequent Reference Period (other than an Employee whose compensation is determined through an existing collective bargaining agreement entered into before March 1, 2020):
(i) Total Compensation which exceeds, during any twelve (12) consecutive months of the period beginning on the Closing Date and ending on the date that is one (1) year after

Page 89

the date on which the Loans are no longer outstanding, the Total Compensation the Corporate Officer or Employee received in calendar year 2019 or the Subsequent Reference Period; or
(ii) Severance Pay or Other Benefits in connection with a termination of employment with any Borrower Air Carrier which exceed twice the maximum Total Compensation received by such Corporate Officer or Employee in calendar year 2019 or the Subsequent Reference Period.
(b) Beginning on the Closing Date, and ending on the date that is one (1) year after the date on which the Loans are no longer outstanding, each Borrower Air Carrier and its Affiliates shall not pay any of each Borrower Air Carrierís Corporate Officers or Employees whose Total Compensation exceeded $3,000,000 in calendar year 2019 or the Subsequent Reference Period, Total Compensation which exceeds, during any twelve (12) consecutive months of such period, in excess of the sum of:
(i) $3,000,000; and
(ii) Fifty percent (50%) of the excess over $3,000,000 of the Total
Compensation received by such Corporate Officer or Employee in calendar year 2019 or the Subsequent Reference Period.
(c) For purposes of determining applicable amounts under this Section with respect to any Corporate Officer or Employee who was employed by any Borrower Air Carrier or any of their Affiliates for less than all of calendar year 2019, the amount of Total Compensation in calendar year 2019 shall mean such Corporate Officerís or Employeeís Total Compensation on an annualized basis.
https://home.treasury.gov/system/fil...umentation.pdf

If not, what would induce them to refinance the Treasury loans at a higher rate?
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