NEW YORK--(BUSINESS WIRE)--Fitch Ratings has assigned a rating of 'BB+/RR1' to American Airlines, Inc.'s (American) senior secured credit facility. Fitch has also affirmed the 'BB+/RR1' rating on American's existing credit facility secured by its South American franchise (South American SGR Facility) following the company's decision to upsize its existing $1 billion revolver by $400 million. The ratings for American and its parent company American Airlines Group Inc. (AAG) remain unchanged at 'B+'. The Rating Outlook is Stable. A full list of ratings follows at the end of this release.
American is expected to enter into new $1.15 billion senior secured credit facilities (new facilities) consisting of a $400 million five-year revolver and a $750 million seven-year term loan. The term loan is scheduled to amortize at 1% per annum with the remainder due at maturity. The proceeds are expected to be used for general corporate purposes.
KEY RATING DRIVERS
The new facilities will be secured on a first priority basis by collateral previously encumbered by American's 7.5% senior secured notes, the remaining balance of which the company paid down August of this year. American will be the borrower under the facility. Consistent with American's existing credit facility, it will feature guarantees from the parent company, AAG, and from US Airways, Inc. and US Airways Group, Inc.
Importantly, the new facilities will not significantly change AAG's capital structure. The $1.5 billion issued between the new term loan and the $750 million in unsecured notes issued by AAG last week is offset by other debt repayments that have either been completed since the merger with US Airways or will be completed by the end of 2014. Debt reduction includes the August repayment of American's $1 billion 7.5% secured notes as well as the prepayment of other aircraft debt, special facility revenue bonds, and aircraft purchased off of lease. Additional revolver capacity from American's new credit facility and from its upsized existing revolver, will help to bolster American's already solid liquidity position.
In a going-concern scenario (which Fitch considers the most likely scenario), recovery values are supported by the underlying collateral's strategic importance to AAL. Collateral consists of certain route authorities, airport landing and take-off slots and gate leaseholds used for services between London Heathrow and New York, LA, Chicago, Dallas, Raleigh/Durham, and Miami, flights between the U.S. and Tokyo Narita, flights between Chicago and Shanghai and Chicago to Beijing.
Fitch considers the collateral to be strategically important to AAG. London Heathrow and Tokyo Narita are both slot constrained airports in key business markets, making these slots and route authorities valuable assets. The Chinese routes also represent attractive assets given the strong growth in Chinese international travel in recent years. Therefore, first lien holders would be expected to hold significant sway in any future reorganization.
Fitch's recovery analysis focuses on a 'going-concern' valuation in which distressed enterprise value (EV) is allocated to the various classes of debt in the company's capital structure. In its analysis, Fitch generates a conservative estimate for a going-concern EBITDA and then applies a multiple to determine distressed EV. Fitch's analysis results in an estimated recovery of at least 91% to the entire credit facility (term loan and revolver), which equates to an 'RR1' rating under Fitch's recovery analysis criteria.
Although the underlying slots, gates, and routes are intangible assets and are inherently difficult to value, Fitch also conducted a discrete recovery analysis looking at the value of the collateral on a stand-alone basis. This analysis utilizes appraised values from a third party appraiser, and applies further haircuts to those appraised values. Fitch evaluated the low end of a range of appraised values and noted that the collateral package could withstand haircuts of more than 50% and first lien holders would be expected to receive 91%-100% recovery.
Upsized Existing Revolver:
American also intends to upsize its existing $1 billion revolving credit facility by $400 million. The South American SGR facilities are secured by slots, gates, and routes that represent American's entire South American franchise. As with the ratings on the new credit facility discussed above, the affirmation of the ratings on the upsized revolver is primarily supported by Fitch's going-concern recovery analysis. Based on the conservative assumptions described in that analysis, Fitch would expect the secured creditors to receive full recovery in a going concern scenario, despite including a full draw on the upsized credit facility in the senior secured section of the waterfall. This analysis supports the 'RR1' rating and corresponding three notch uplift from American's IDR.
RATING SENSITIVITIES
The term loan ratings are tied to American's IDR and the collateral value securing the facility. Fitch could consider a negative rating action on the term loans if Fitch judged there to be a significant devaluation of the collateral, which would affect the recovery rating, or if Fitch were to downgrade American's IDR.
A negative rating action on American's IDR is not anticipated at this time. However, Fitch could consider revising the ratings downward if the company were to experience significant/sustained integration-related difficulties. The ratings could be pressured by an unexpected drop in the demand for air travel or a fuel price shock that materially impacts operating results.
A positive rating action is not anticipated at this time. If Fitch were to upgrade American's IDR to 'BB-', American's senior secured ratings would likely be maintained at 'BB+' as described in Fitch's corporate recovery criteria.
Fitch has assigned the following ratings:
American Airlines, Inc.
--Senior secured credit facility 'BB+/RR1'.
Fitch has affirmed the following ratings:
American Airlines, Inc.
--LATAM SGR senior secured credit facility 'BB+/RR1'.
Fitch currently rates American Airlines as follows:
American Airlines Group Inc.
--IDR 'B+';
--Senior unsecured notes 'B+/RR4'.
American Airlines, Inc.
--IDR 'B+';
--Senior secured credit facility 'BB+/RR1'.
US Airways Group, Inc.
--IDR 'B+';
--Senior unsecured notes 'B+/RR4'.
US Airways, Inc.
--IDR 'B+';
--Senior secured credit facility 'BB+/RR1'.
Additional information is available at 'www.fitchratings.com'.
Applicable Criteria and Related Research:
--'Corporate Rating Methodology' (May 28, 2014);
--'Recovery Ratings and Notching Criteria for Nonfinancial Corporate Issuers' (Nov. 19, 2013).
Applicable Criteria and Related Research:
Corporate Rating Methodology - Including Short-Term Ratings and Parent and Subsidiary Linkage
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=749393
Recovery Ratings and Notching Criteria for Non-Financial Corporate Issuers
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=721836
Additional Disclosure
Solicitation Status
http://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=881194
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