Moody’s anticipates post-merger upgrade of US Airways debt

Washington DC
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Moody's Investor Services has placed $6.4 billion in debt issued by US Airways on review for a possible upgrade, pending the carrier's proposed merger with American Airlines.

"We believe that the credit profile of AAG [American Airlines Group] will be indicative of at least the B2 rating category following the merger," says Jonathan Root, a senior credit officer at the ratings agency, in a statement. "We anticipate that the larger company will have a favourable competitive position, good operating and financial flexibility and sizeable liquidity."

Tempe, Arizona-based US Airways has a B3 corporate family rating from Moody's, while Fort Worth-based American was rated Baa3 before its Chapter 11 bankruptcy filing in November 2011.

The upgrade would reflect improving confidence in US Airways credit among the investor community. The carrier achieved a spread of 300.5bp over 10-year US Treasury notes on the $418.1 million senior A tranche of its 2012-2 enhanced equipment trust certificate (EETC) issue on 29 November 2012, its last before it announced plans to merge with American on 14 February.

The spread on its senior $620.1 million 2013-1 notes - the first post-merger announcement EETC - had tightened to 216.5bp over 10-year treasuries on 10 April.

A US bankruptcy court judge is expected to confirm American's creditor-approved reorganisation plan during a hearing on 15 August, and US Department of Justice antitrust approval for the merger is anticipated before the end of the quarter.