In an attempt to mitigate the financial blow brought by the coronavirus pandemic, American Airlines said Sunday it would raise $3.5 billion in new financing, supplementing billions of funding the airline is receiving through government programs.
The company plans to sell $750 million in common stock shares and an equal amount of convertible senior notes due in 2025 in a public offering. Goldman Sachs, Citigroup, BofA Securities and J.P. Morgan are the joint active bookrunners and underwriter representatives.
The company will also make a private offering of $1.5 billion in secured senior notes due in 2025, and enter a $500 million Term Loan B facility due in 2024.
To date, American has mostly sought assistance from the U.S. government to address the financial repercussions of a massive drop in demand. The airline was approved for $5.8 billion from the Payroll Support Program — $4.1 billion of which has been received — and expects to receive a $4.75 billion loan through the Coronavirus Aid, Relief, and Economic Security Act.
“We intend to pursue the issuance of additional unsecured and secured debt securities, equity securities and equity-linked securities and/or the entry into additional bilateral and syndicated secured and/or unsecured credit facilities,” the airline said. “There can be no assurance as to the timing of any such financing transactions, which may be in the near term, or that we will be able to obtain such additional financing on favorable terms, or at all.”
Some of the new funds will go toward refinancing a $1 billion delayed draw term loan facility that the company entered into on March 18 that matures in March 2021. The rest will be used “for general corporate purposes and to enhance the company’s liquidity position.”
American used various slots, gates and routes at airports in the United States, Australia, Hong Kong and elsewhere as collateral for the notes and loan.
The new offering’s underwriters will have a 30-day option to purchase up to $112.5 million of both additional stock shares and additional convertible notes.
Airlines are still reeling from shutdowns around the world decimating their bottom lines. Other measures American has taken to try to absorb the hit include reducing its capacity, making structural changes to its fleet, imposing cost reductions and preserving cash.
American told the U.S. Securities and Exchange Commission earlier this month that it expects second-quarter revenue to be 90% lower than a year ago, with total system capacity down about 75%. It predicted a company liquidity of $11 billion as of June 30.
“We incurred significant negative cash flow in the first quarter of 2020, we continue to do so, and we expect to continue to do so until there is a significant recovery in demand for air travel,” the company explained. “The duration and severity of the COVID-19 pandemic remain uncertain, and there can be no assurance that these actions will suffice to sustain our business and operations through this pandemic. We expect our results of operations for fiscal 2020 to be materially impacted.”
Other struggling airlines are also seeking new financing. United Airlines said last week it would use a customer loyalty program to back a $5 billion loan, and that it may also receive a $4.5 billion loan under the CARES Act.
United and American both anticipated an average cash burn of approximately $40 million per day in June.