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American Air Prices $10 Billion Debt Sale Amid Robust Demand

American Air Boosts Debt Sale to $10 Billion Amid Strong Demand

American Airlines Group Inc. priced a $10 billion bond and loan offering backed by its frequent-flyer program as investors clamored for the protection provided by the special structure.

The carrier received around $45 billion in orders on the total $10 billion deal, according to people with knowledge of the matter, who asked not to be named discussing a private transaction. Roughly $30 billion of the demand was for the bond portion.

On Wednesday, the company boosted the size and cut borrowing costs on the debt sale, making it the largest ever by an airline.

American increased the bond size by $1.5 billion total. Each of the bond tranches, which mature in five and eight years, yield 5.5% and 5.75%, respectively, lower than initial discussions in the low-to-high 6% range.

The $3.5 billion loan, which grew by $1 billion, wrapped up at a spread of 475 basis points over the London Interbank offered rate, with an original offering discount of 1 cent on the dollar, down from the 500 to 525 basis-point range and discount of up to 2 cents initially discussed.

Representatives for Goldman Sachs Group Inc., which led the bond, and Barclays Plc, which led the loan, declined to comment. American Airlines didn’t respond to a request seeking comment.

American’s record deal surpassed Delta Air Lines Inc.’s $9 billion sale in September, and a $6.8 billion transaction from United Airlines Holdings Inc. in June.

American Air Prices $10 Billion Debt Sale Amid Robust Demand

All three used a special structure, pioneered by United, that backstops the debt with the company’s frequent-flyer program. Extracting value from rewards programs has become a critical lifeline for carriers that have faced disrupted air travel for more than a year due to the Covid-19 pandemic.

Read more: Goldman Helps United Reshape Aviation Finance in Air-Miles Deal

Loyalty programs carry a lot of value -- around $18 billion to $30 billion, in American’s case -- which in part contributes to higher credit ratings on such deals. That’s helped drive investor demand at a time when air traffic levels are still well below the norm. Moody’s Investors Service rates American’s new bonds Ba2, or two steps below investment grade, while its corporate issuer rating is three notches lower.

American Air Prices $10 Billion Debt Sale Amid Robust Demand

Proceeds from American’s offering will help refinance its $7.5 billion Treasury loan, of which $550 million has been drawn to date, according to an investor presentation Monday. The remaining proceeds will be used for general corporate purposes.

American returned to the market at a ripe time for borrowers: Funding costs are at historically low levels and risk appetite has been soaring as investors rush to get their hands on higher-paying assets. The airline borrowed $2.5 billion in June at an all-in yield of 12%.

©2021 Bloomberg L.P.