AMR pays up on offerings as CDS levels rise

Credit-default swaps for AMR Corp, parent company of American Airlines, rose to 49.5% upfront yesterday from 29.25% on August 1, suggesting the market considers the airline to be struggling, if not inching closer to filing for Chapter 11. Delta Air Lines and United Continental CDS upfront price is 18%, as a comparison.

AMR Corp is expected to pay up on its offering of $725.7 million of debt backed by aircraft – the first such offering since January. The 10-year pass-through certificates will be used to finance aircraft.

American Airlines has $828.8 million of 7.858% pass-through certificates maturing on October 1. AMR will need to refinance aircraft supporting the maturing debt with a new bond deal, which is likely to yield about 8%, according to JPMorgan analysts Jamie Baker, Scott Tan, Joseph Abboud and Mark Streeter, who said: “Assuming AMR pulls the trigger on a new deal near this pricing, AMR will pay a steep price for not having issued earlier in the year to refinance this maturity when the markets were more receptive.”

The JP Morgan analysts however did not see AMR seeking bankruptcy protection any time soon, although admitted they were in the minority camp.