New York, April 18, 2016 -- Moody's Investors Service assigned a Ba1 rating to the new $750
million, seven year term loan that American Airlines, Inc.
("American") plans to arrange. Moody's also affirmed
its corporate debt ratings of American Airlines Group, Inc.
("AAG"): Corporate Family of Ba3, Probability
of Default of Ba3-PD, Senior Secured of Ba1 and Senior Unsecured
rating of B1. The ratings outlook is stable.
RATINGS RATIONALE
Proceeds of the new loan will refinance the company's $588
million senior secured term loan due November 23, 2016, the
balance will be used for general corporate purposes. The new loan
will be collateralized by the spare parts inventory for the company's
mainline fleet. AAG will guarantee American's obligations
under the new facility, similar to the company's other bank
credit facilities.
The Ba3 Corporate Family rating considers the company's position
as one of the four leaders in the US domestic market based on size,
credit metrics that are reflective of the Ba rating category and limited
free cash flow as the company continues to renew its aircraft fleet,
mostly with debt-funding. The rating anticipates little
strengthening of metrics from year end 2015 levels (Debt to EBITDA of
3.8x, FFO + Interest to Interest of 4.8x) as
the benefits of lower fuel expense are offset by 1) higher labor costs,
and 2) moderating growth in passenger demand and continuing pressure on
unit revenues for the US airline industry. The rating also reflects
American's very good liquidity and Moody's belief that the
US players including American will raise fares when the cost of oil increases
and reduce capacity should demand weaken, to maintain the pursuit
of earning targeted returns on invested capital.
The stable outlook reflects Moody's expectation of little change in the
company's metrics profile through 2016. Moody's estimates
modest free cash flow in 2016 of between $500 million and $1.0
billion, meaningfully less than the dollar value of its shares the
company will repurchase. The company's large order book will require
higher capital investment than its peers after 2016. The larger
investment and weaker free cash flow will likely lead to increases in
funded debt, slowing the pace of improvement in AAG's credit metrics
profile beyond 2016.
A global macroeconomic shock that leads to wide-spread declines
in passenger demand is the most significant risk to upwards rating pressure.
Moody's also believes that industry-wide increases in the cost
of jet fuel can mostly be covered by higher fares as long as demand remains
about steady. The strategy of not hedging exposure to increasing
fuel prices does leave AAG more exposed than peers that do hedge some
of their fuel needs. A positive rating action could occur if:
1) AAG reduces debt to limit pressure on credit metrics when industry
fundamentals weaken, including declines in demand or higher fuel
prices that cannot be covered by higher fares; 2) Debt to EBITDA
is less than 3.5 times, Funds from Operations + Interest
to Interest is above 5 times and the EBITDA margin is sustained near 25%;
3) positive free cash flow is sustained near 5% of debt,
a majority of which is applied to debt reduction, and 4) the company
applies excess cash to the repayment of debt or buyout of aircraft leases
rather than share repurchases.
A negative rating action could occur if: 1) AAG's EBITDA margin
approaches 17%; Moody's estimates that the EBTIDA margin could
reach this level if a gallon of jet fuel increased to about $3.00
per gallon all else equal; 2) there is a sustained decline in demand
that leads to declines in yields of more than 8% with no corresponding
offsets to costs, 3) aggregate liquidity (including availability
on revolving credit facilities) is less than $5.0 billion
or unrestricted cash is less than $3.5 billion; 4)
Debt to EBITDA approaches 5.0 times, Funds from Operations
+ Interest to Interest approaches 3.0 times and Retained Cash
Flow to Net Debt approaches 15%; and 5) there is a sustained
increase in the cost of jet fuel that is not offset by higher fares,
or share repurchases are funded with debt.
American Airlines Group Inc. is the holding company for American
Airlines, Inc. and US Airways, Inc. Together
with regional partners, operating as American Eagle and US Airways
Express, the airlines operate an average of nearly 6,700 flights
per day to nearly 350 destinations in more than 50 countries. The
company reported revenue of $41 billion in 2015.
Assignments:
..Issuer: American Airlines, Inc.
....Senior Secured Bank Credit Facility,
Assigned Ba1 (LGD2)
Outlook Actions:
..Issuer: American Airlines Group Inc.
....Outlook, Remains Stable
..Issuer: American Airlines, Inc.
....Outlook, Remains Stable
Affirmations:
..Issuer: American Airlines Group Inc.
.... Probability of Default Rating,
Affirmed Ba3-PD
.... Corporate Family Rating, Affirmed
Ba3
....Senior Unsecured Regular Bond/Debenture,
Affirmed B1 (LGD4) from (LGD5)
..Issuer: American Airlines, Inc.
....Senior Secured Bank Credit Facilities,
Affirmed Ba1 (LGD2)
..Issuer: HILLSBOROUGH COUNTY AVIATION AUTHORITY,
FL
....Senior Secured Revenue Bonds, Affirmed
B1 (LGD4) from (LGD5)
..Issuer: Pennsylvania Economic Dev. Fin.
Auth.
....Senior Unsecured Revenue Bonds,
Affirmed B1 (LGD4) from (LGD5)
..Issuer: Phoenix Industrial Development Authority,
AZ
....Senior Unsecured Revenue Bonds,
Affirmed B1 (LGD4) from (LGD5)
..Issuer: US Airways Group, Inc.
....Senior Unsecured Regular Bond/Debenture,
Affirmed B1 (LGD4) from (LGD5)
..Issuer: US Airways, Inc.
....Senior Secured Bank Credit Facility,
Affirmed Ba1 (LGD2)
The principal methodology used in these ratings was Global Passenger Airlines
published in May 2012. Please see the Ratings Methodologies page
on www.moodys.com for a copy of this methodology.
REGULATORY DISCLOSURES
For ratings issued on a program, series or category/class of debt,
this announcement provides certain regulatory disclosures in relation
to each rating of a subsequently issued bond or note of the same series
or category/class of debt or pursuant to a program for which the ratings
are derived exclusively from existing ratings in accordance with Moody's
rating practices. For ratings issued on a support provider,
this announcement provides certain regulatory disclosures in relation
to the rating action on the support provider and in relation to each particular
rating action for securities that derive their credit ratings from the
support provider's credit rating. For provisional ratings,
this announcement provides certain regulatory disclosures in relation
to the provisional rating assigned, and in relation to a definitive
rating that may be assigned subsequent to the final issuance of the debt,
in each case where the transaction structure and terms have not changed
prior to the assignment of the definitive rating in a manner that would
have affected the rating. For further information please see the
ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.
For any affected securities or rated entities receiving direct credit
support from the primary entity(ies) of this rating action, and
whose ratings may change as a result of this rating action, the
associated regulatory disclosures will be those of the guarantor entity.
Exceptions to this approach exist for the following disclosures,
if applicable to jurisdiction: Ancillary Services, Disclosure
to rated entity, Disclosure from rated entity.
Regulatory disclosures contained in this press release apply to the credit
rating and, if applicable, the related rating outlook or rating
review.
Please see www.moodys.com for any updates on changes to
the lead rating analyst and to the Moody's legal entity that has issued
the rating.
Please see the ratings tab on the issuer/entity page on www.moodys.com
for additional regulatory disclosures for each credit rating.
Jonathan Root
VP - Senior Credit Officer
Corporate Finance Group
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653
Robert Jankowitz
MD - Corporate Finance
Corporate Finance Group
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653
Releasing Office:
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653
Moody's affirms Ba3 CFR of American Airlines; assigns Ba1 rating to new credit facility
