American Airlines just boosted the amount they are borrowing against the AAdvantage program to a record-breaking $10 billion.
- United Airlines went to market first to mortgage MileagePlus seeking to raise $5 billion which they then upsized to $6.8 billion.
- Delta followed with a plan to borrow $6.5 billion against SkyMiles, but stopped their transactions at $9 billion.
- American Airlines pledged AAdvantage against a subsidized CARES Act loan of up to $7.5 billion from the U.S. Treasury.
This week American announced a plan to raise $7.5 billion from the private markets instead to close out their CARES Act lending facility. This led to huge amounts of detailed disclosure about the program to investors.
Now American is supersizing their AAdvantage mortgage refinancing to $10 billion. The cash-out ReFi breaks down as follows,
- $3.5 billion senior secured notes at 5.5% due in 2026
- $3.0 billion senior secured notes at 5.75% due 2029
- $3.5 billion term loan facility
The blended average rate on this debt is 5.575%, paid by three subsidiaries that now make up AAdvantage based in the Cayman Islands. When the pandemic is over I’m encouraging American to throw a Members Only Party on board several flights to Grand Cayman where we can all visit our miles.
Wow, a 5.575% rate on debt is junk-bond yield territory. AA officers probably collect books on Pan Am, Braniff, and TWA in their libraries at home.
They should issue bonds paying interest in AAdvantage miles. That would be interesting.
It would be an interesting stat to see how many total miles each program has outstanding.
At 540,000 miles each way? You betcha.
@DaninMCI – this used to be in the American Airlines 10-Ks. At the end of 2015 it was 853.6 billion. It’s possible to do a rough extrapolation with the data they still release but it’s imperfect.
@toomanybooks Hainan Airlines actually tried offering free travel in lieu of interest!
https://viewfromthewing.com/troubled-major-airline-offers-free-travel-instead-of-interest-payments-to-investors/
cAAymen Islands? Sounds shady.
This deal traded crazy good in the secondary market. One of the worst mispricings I can remember.
Pretty sure I can get a personal loan (unsecured) at a lower interest rate than that, which is… not good for AA.
AA is loading up on debt (and refinancing off the US gov loans). Will they resume paying dividends next or make a similar move that is a clear red flag? Debt isn’t bad, but the math is starting to clearly indicate distress, and the business itself is not a money maker. Is AA just trying to get out of service guarantees due to the federal loans?