Moves by American Airlines to raise cash via a “trifecta” of equity, convertible bonds and debt raises is a “liquidity grab” by the carrier to tap markets while there is still appetite by investors for aviation, according to analysts Cowen.
American will raise $4 billion in liquidity through a combination equity, convertible notes and debt raises which will bring the firm’s total liquidity to $15 billion by the end of Q2 2020. With a cashburn rate of £40 million a day during June gives, the latest capital raising will give the firm roughly ten and half month’s cash on hand.
American is offering $1 billion in convertible senior notes, which is an increase from the original $750 million offered, at a price 6.5%, with the paper maturing in 2025. Additionally American is set to price $1.5 billion of senior secured notes today in addition to a new $500 MM Term Loan B Facility (2024).
According Cowen the junk issue is said to yield around 12%, which the firm described in an analyst note as “the worst we've seen in a long time, and the highest yield of all debt on their books”.
In the note Cowen said that they had “received significant pushback from our recent bullish report on American Airlines”, with a number one criticism being the firm’s balance sheet and liquidity position. In response to a question from Airline Economics about what Cowen’s estimated pricing of American’s junk offerings implied for the company’s creditworthiness, analyst Helane Becker said it was reflective of the sheer volume of US airlines capital market activity currently.
“We are estimating [the pricing at 12%] because of their leveraged balance sheet means that is the rate they will get. It could be lower. The convertible was priced at 6.5% for example. But the reality is that airlines have raised $47 billion before the Alaska, American and United deals this week and not including CARES Act financing.
It’s a liquidity grab, and the more airlines that raise capital the less there will be for those coming late to the party. The FED has been very accommodating, so companies are able to raise liquidity. As we head deeper into recovery, rates should improve,” Becker said.