American Airlines (AAL) stock price is falling as the company wants to get $3.5 billion in fresh financing. $1.5 billion is to be received through share sales and the issuance of convertible debt notes. The second part will be offered in secured notes.
American Airlines Group Inc (NASDAQ: AAL) stock price was down at the end of trading last week and is down now. This occurred as reports have emerged that the airline is seeking $3.5 billion in fresh financing. On Friday, American Airlines (AAL) stock price was at $16.00 (-2.97%). At the time of writing, in the pre-market, it is falling by over 8% and now the price is $14.66.
The new funds are aimed at improving the airline’s liquidity situation. This comes at a time when the COVID-19 pandemic has upended the travel industry globally. The effects of the movement restrictions have sent Airlines into the red. These days, flights are made for route maintenance. There several means that the airline intends to raise funds.
American Airlines Financial Plans amid AAL Stock Fall
American Airlines plans to raise $1.5 billion. This will occur through share sales and the issuance of convertible debt notes. The notes will be due in 2025. An additional $1.5 billion will be offered in secured notes. Another credit facility which will be due in 2024 brings the total financing to $3.5 billion. American Airlines has indicated that it will use the proceeds from the above offerings to improve its liquidity situation. The stock and convertible note offerings have 30-day purchase options of up to $112.5 million worth of additional common shares. $112.5 million worth of convertible notes is available for purchase by underwriters as well. The underwriters’ representatives are BofA Securities, Goldman Sachs Group Inc (NYSE: GS), Citigroup Inc (NYSE: C), and JPMorgan Chase & Co. (NYSE: JPM).
Sources say that the airline has used slots, gates, and routes from several countries as collateral. Countries include the U.S., China, Japan, Australia, and South America. This is happening at a time when movement restrictions are easing. There are fewer numbers of passengers in the skies due to the COVID-19 pandemic. Airlines last week said that the recovery was modest at best. The reason for this is the slow demand for airline tickets. This poor demand though has helped to slow the spending rate of the airlines who have had a tough time so far. The renewed demand is coming mostly from customers who are tired of the shelter in place restrictions that were put in place by authorities.
The major issue with the bond offering is the high-interest rate. This puts it within the “junk bond” status. The rates are as high as 11% according to sources. It also creates a new ecosystem for investors who wish to take advantage of the situation.
Airlines Implement Cost-Cutting Measures
As the travel industry struggles to recover, many airlines have considered several cost-cutting measures. Such measures include voluntary layoffs and mandatory leave. This is occurring as most airlines in the U.S. are waiting for the October 1 expiration of the Zero-furlough restrictions. The restrictions are tied to Federal Aid. It remains unseen if the October 1 deadline will be shifted. As likely as it is, airlines are tightening their belts for what is fast becoming a bumpy ride both in the skies and on the ground.
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