(Bloomberg) — American Airlines Group Inc. has received around $45 billion in orders on a $10 billion debt deal backed by its frequent-flyer program as investors clamor for the protection offered by the special structure, according to people familiar with the matter.
Roughly $30 billion of the demand is for the bond portion of the sale, though that could grow, with the remainder going to the loan, the people said, asking not to be named discussing a private transaction.
Representatives for Goldman Sachs Group Inc., which is leading the bond, and Barclays Plc, which is leading the loan, declined to comment. American Airlines didn’t immediately respond to a request seeking comment.
The airline on Wednesday boosted the size and cut borrowing costs on the debt sale, making it the largest ever by an airline. The carrier is now selling $6.5 billion of bonds and $3.5 billion of loans, up from $5 billion and $2.5 billion, respectively, separate people familiar said. Each of the bond tranches, which mature in five and eight years, may yield around 5.75% and 6%, respectively, lower than initial discussions in the low-to-high 6% range.
American’s record deal surpasses Delta Air Lines Inc.’s $9 billion sale in September, and a $6.8 billion transaction from United Airlines Holdings Inc. in June.
All three used a special structure, pioneered by United, that backstops the debt with the company’s frequent-flyer program. Extracting value from rewards programs has become a critical lifeline for carriers that have faced disrupted air travel for more than a year due to the Covid-19 pandemic.
Read more: Goldman Helps United Reshape Aviation Finance in Air-Miles Deal
Loyalty programs carry a lot of value — around $18 billion to $30 billion, in American’s case — which in part contributes to higher credit ratings on such deals. That’s helped drive investor demand at a time when air traffic levels are still well below the norm. Moody’s Investors Service rates American’s new bonds Ba2, or two steps below investment grade, while its corporate issuer rating is three notches lower.
Proceeds from American’s offering will help refinance its $7.5 billion Treasury loan, of which $550 million has been drawn to date, according to an investor presentation Monday. The remaining proceeds will be used for general corporate purposes.
Read more: American Air Borrowing $7.5 Billion in Loyalty-Backed Debt
Books closed on the bonds at 11 a.m. in New York on Wednesday, with pricing expected thereafter, the people familiar added. Commitments on the loan have been accelerated by one day to Wednesday.
American is returning to the market at a ripe time for borrowers: Funding costs are at historically low levels and risk appetite has been soaring as investors rush to get their hands on higher-paying assets. The airline borrowed $2.5 billion in June at an all-in yield of 12%.
(Updates with book color starting in the first paragraph.)
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