American Airlines, Inc. issued two tranches of enhanced equipment trust certificates this week totalling $663.3 million while still operating under Chapter 11 court supervision.
The airline, which filed for bankruptcy on Nov. 29, 2011, paid a fixed rate of 4% for the $506.7 million, 'BBB+' rated, class A notes; and a fixed rate of 5.625% for the $156.6 million 'B'–rated, class B notes, according to a regulatory filing.
The equipment notes are secured by eight currently owned Boeing 737-823 aircraft, one currently owned Boeing 777-223ER aircraft and four Boeing 777-323ER aircraft scheduled for delivery between April 2013 and July 2013, according to a presale report by Fitch Ratings.
Fitch expects to upgrade the notes once American exits bankruptcy and completes its proposed merger with US Airways.
The deal qualifies as 'post-petition' secured debtor-in-possession financing and grants creditors stronger downside protection while AA is still in Chapter 11, Fitch said.
EETCs are typically offered under Section 1110, a special provision of the U.S. Bankruptcy Code, that requires creditors to wait 60 days before they can exercise remedies (such as enforce security by repossessing/selling collateral) in the event of default. DIP financing would permit the creditors to skip the customary waiting period.
“These stronger provisions are not incorporated in Fitch's ratings, as they 'fall-away' upon emergence when the contractual terms revert to standard EETC documentation, which forms the basis of Fitch's ratings analysis,” the ratings agency said.