American Airlines is seeking approval for an up to $3.25 billion term financing backed by its South American network, as it seeks to boost liquidity and pay down debt ahead of its proposed merger with US Airways.
The so-called SGR financing would be split between a $2.25 billion secured term debt with a six-year tenor and a $1 billion revolving credit facility with a five-year tenor, according to a filing with the US Bankruptcy Court for the Southern District of New York on 25 April.
Proceeds would be split between partially repaying $450 million in outstanding principal and $73 million in outstanding interest payments on its 10.5% senior secured notes that were due in October 2012, and to boost liquidity. The outstanding 2012 notes are secured by 143 airframes.
The SGR debt would be secured by Fort Worth-based American's route authorities, slots and gates associated with its South American operations, according to the filing. These are currently unencumbered.
In South America, the airline flies to Argentina, Bolivia, Brazil, Chile, Colombia, Ecuador, Paraguay, Peru, Uruguay and Venezuela. Destinations include highly competitive slot controlled airports such as Sao Paulo Guarulhos and Rio de Janeiro Galeao.
American could add certain authorities, slots and gates related to its flights to Central America and Mexico at a later date, it says in the filing.
The structure is comparable to existing financings secured by the carrier's authorities, slots and gates associated with some of its operations to China, Europe and Japan.
United Airlines closed a similar $1.9 billion refinancing, which was split between a $900 million secured term loan and a $1 billion revolver, that priced at 300bp over Libor in March, and Delta Air Lines closed a $1.95 billion deal in October 2012.
American priced a $663 million enhanced equipment trust certificate (EETC) deal secured by 13 aircraft in March, and received bankruptcy court approval for an up to $1.5 billion EETC issue in January. The latter deal has been delayed due to legal appeals by trustee US Bank.
Dallas-Fort Worth International airport filed an objection to the SGR financing with the bankruptcy court on 1 May. The airport cites language in its lease with American that bars it from using gates at Dallas-Fort Worth as security for debt.
American operates its largest hub at Dallas-Fort Worth, including flights to Buenos Aires, Caracas, Lima, Rio de Janeiro Galeao, Santiago and Sao Paulo Guarulhos.
Barclays Capital, Citi, Deutsche Bank, Goldman Sachs, JP Morgan and Morgan Stanley have provided American with commitments to act as joint lead arrangers for the proposed SGR financing, according to American's filing. Rothschild is financial adviser to the airline.
A hearing will be held in New York on 9 May.