(Bloomberg) — American Airlines Group Inc. launched a $2 billion junk-debt offering on Monday as it looks to shore up liquidity amid a hesitant return to flying during the pandemic.The company is marketing a $1.5 billion secured junk bond maturing in 2025 and a $500 million four-year loan, according to people with knowledge of the matter. Based on initial discussions with investors, the loan is being offered at a spread of 9.5 percentage points over the London interbank offered rate and at a discount of between 95 cents to 96 cents on the dollar, said the people, who asked not to be named discussing a private transaction.The debt will be secured by slots, gates and routes across the world in the United States, Latin America, Asia, and Europe. The company was sounding out investors last week for a potential five-year secured note at a yield of 11%, according to other people familiar with the matter.The debt package is part of a larger $3.5 billion financing that also includes $750 million of new shares, which are expected to trade on Tuesday, and $750 million of senior convertible notes due in 2025. American dropped 4.1% to $15.34 at 09:51 a.m. in New York, the biggest decline on a Standard & Poor’s index of major U.S. airlines..Read more: American Air slumps after announcing $3.5 billion financing planThe junk bond, which cannot be repaid for the life of the deal, includes a rare provision where the company must meet a minimum collateral coverage ratio. If American Airlines doesn’t, the company is required to pay a special interest penalty of 2% until compliance is restored.Calls with loan and bond investors are scheduled for 10 a.m. in New York. The junk bond may be sold as soon as Wednesday, with commitments for the loan due the same day. Citigroup Inc. is leading both financings.American, the most debt-laden of the largest U.S. airlines, is seeking the financing to help it get through a collapse in travel demand stemming from the outbreak. The debt and equity raise is a divergence from the company’s recent reliance on federal aid as Covid-19 suppresses travel demand.Proceeds from the debt will refinance a $1 billion 364-day term loan the company raised from banks in March, with the remaining used to enhance the company’s liquidity, according to a news release.(Updates with share price in fourth paragraph.)For more articles like this, please visit us at bloomberg.comSubscribe now to stay ahead with the most trusted business news source.©2020 Bloomberg L.P.
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