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Update 23 July 2020: Amerian Airlines has priced its stock issue at $13.50 per share.
American Airlines chose to use Sunday afternoon to announce that it is looking to raise at least $3.5 billion through a combination of a public stock offering, the issuing of loan stock, and a new secured credit facility.
Here’s what American Airlines announced on Sunday:
- The airline will attempt to raise $750m through an underwritten public share offering.
- $750m of convertible senior notes due in 2025 will be issued
- The underwriters of the above two issues are being granted a 30-day option to purchase, in whole or in part, up to $112,500,000 of additional shares of Common Stock in the Common Stock Offering and up to $112,500,000 additional Convertible Notes, in each case solely to cover over-allotments, if any.
- The closing of neither the Common Stock Offering nor the Convertible Notes Offering is conditioned upon the closing of the other offering.
- A further private offering of $1.5bn in secured senior notes (due in 2025) is also planned with the notes being guaranteed on a “senior unsecured basis” by American Airlines group.
- The security being offered for the $1.5bn in senior notes is broken down into two parts:
- On a first lien basis, American is offering “a diverse pool of certain slots, gates and routes collateral that the Company uses to provide non-stop scheduled air carrier services between certain airports in the United States and certain airports in Australia, Canada, the Caribbean, Central America, China, Hong Kong, Japan, Mexico, South Korea, and Switzerland“
- On a second lien basis, American is offering “a pool of certain slots, gates and routes collateral the Company uses to provide non-stop scheduled air carrier services between certain airports in the United States and certain airports in the European Union and United Kingdom.”
- Amerian Airlines will enter into a new $500 million credit facility due for repayment in 2024.
In summary, Amerian Airlines hopes to raise $750m from the issue of new equity, $2.25bn from the issue of new loan stock (bonds), and $500m from a new credit facility. That totals $3.5bn.
It will be interesting to see how American Airlines progresses with its plans to raise the $3.5bn which the company says will be used for general purposes and for liquidity as the various processes may not go as smoothly as the airline may hope.
The $750m being raised from a stock offering and the $750m being raised from the issue of convertible senior notes shouldn’t cause the airline and headaches as both of these cash-raising measures have been underwritten and, presumably, the $500m credit facility deal is already in the bag of it wouldn’t have been announced. The $1.5bn that the airline is hoping to raise from the private issue of secured notes may be more problematic.
In April, United Airlines successfully raised over $1bn in a stock floatation but when it attempted to raise a further $2.25bn through a private bond placement just a few weeks later, the airline found that takers were hard to find and it was forced to cancel the issue. American Airlines may fare better but the issues faced by United show that the path is far from obstacle free.
Regarding the issuing of new stock, the American Airlines submission to the SEC (.htm file) didn’t say when the share issue will take place…
…nor did it give any indication the price that is planned for the floatation…
…but a subsequent announcement on 23 July 2020 (before markets opened) confirmed that shares would be issued at $13.50.
For reference, American Airlines Group shares closed down 6.75% at $14.92 on Monday 22 June 2020.
It’s no surprise to see American Airlines turning to the financial markets to raise cash to get it through the current challenging times but it will be interesting to see just how much of the target $3.5bn will eventually be raised.