AAdvantage sets talk on upsized $6.5 billion notes as debt offers play to massive books

By Paul A. Harris

Portland, Ore., March 10 – Amid massive demand for its debt offerings, American Airlines, Inc. and its AAdvantage Loyalty IP Ltd. frequent flyer program upsized a three-part package of secured notes and term loan paper to $10 billion from $7.5 billion, market sources said on Thursday.

AAdvantage intends to place an upsized $6.5 billion amount of amortizing senior secured bullet notes (Ba2//BB) in two tranches and to syndicate an upsized $3.5 billion amount of term loan paper.

That debt package was playing to demand in excess of $26 billion on Wednesday morning, including $11 billion of demand for the loan paper, sources said.

The bond portion of the deal features an upsized $3.5 billion tranche of five-year notes talked to yield in the 5¾% area versus initial guidance in the low-to-mid 6% area. The five-year notes, upsized from $2.5 billion, have a two-year interest-only period and amortize at an annual rate of 33% beginning in year three. The expected weighted average life of the five-year notes is 3.7 years.

The bond portion also features an upsized $3 billion tranche of eight-year notes talked to yield in the 6% area versus initial guidance in the mid-to-high 6% area. The eight-year notes, also upsized from $2.5 billion, have a five-year interest-only period, and amortize at an annual rate of 33% beginning in year six. The expected weighted average life of the five-year notes is 6.7 years.

The overall size of the two-part secured notes offering increased from $5 billion.

Sole structuring agent Goldman Sachs & Co. LLC is the left lead bookrunner for the bonds. Barclays and Citigroup Global Markets Inc. are the joint lead bookrunners.

BofA Securities Inc., Credit Suisse Securities (USA) LLC, Deutsche Bank Securities Inc., ICBC Standard Bank plc, J.P. Morgan Securities LLC, Morgan Stanley & Co. LLC, SMBC Nikko Securities America Inc., BNP Paribas Securities Corp., Credit Agricole CIB, HSBC Securities (USA) Inc., MUFG, Standard Chartered Bank, U.S. Bancorp Investments Inc. and BOK are the joint bookrunners.

Three months of interest payments covering the secured notes will be escrowed in a reserve account up front.

The Fort Worth-based air carrier plans to use the proceeds to fund reserve accounts for the notes and loan, and to make an intercompany loan to American Airlines which will be used to pay off its Treasury term loan, with any remaining proceeds to be used for general corporate purposes.

Bond buyer protection includes a cash collection account comprised of collections from Citigroup, Barclays, American and other counterparties to the AAdvantage agreements. Collections will be deposited in a highly rated account bank and pledged to noteholders on a first-priority basis. That account will be subject to a simplified waterfall provision to be applied to pay agents’ fees and expenses, interest and amortization, to top up any reserve account deficiencies and to be used in the event of an early amortization event.

The term loan upsized from $2.5 billion.

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