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Related Research
Rating Action:

Moody's assigns Baa2 rating to American Airlines' DIP term loan

30 Jul 2013

New York, July 30, 2013 -- Moody's Investors Service assigned a Baa2 rating to the $1.55 billion debtor-in-possession term loan ("DIP Facility") of American Airlines, Inc. (DIP) ("American"). The rating on the DIP facility is being assigned on a "point-in-time" basis and will not be monitored going forward and therefore no outlook is assigned to the rating. The rating will be withdrawn within one business day of its issue. Moody's previously assigned a Baa2 rating to this facility when the company first announced this financing on 6 June 2013 with the expectation of securing commitments of $1.5 billion. American arranged $1.05 billion at that time and now seeks to complete an add-on of $500 million. AMR Corporation ("AMR") will guarantee the company's obligations under the facility on an unsecured basis. Certain of the company's slots, gate leaseholds and route authorities that it uses in providing service between the U.S. and ten countries in South America (the "Collateral") will secure the obligations under the DIP Facility. Gate leaseholds at U.S. Airports will not be part of the Collateral.

The bankruptcy has allowed AMR to rework the majority of its cost structure, placing it on a more level footing with its larger U.S. airline peers. Following the company's exit from bankruptcy, we anticipate that we would rate the reorganized company within the single-B rating category and that the rating assigned to the Exit Facility could be notched above the Corporate Family Rating under our Loss Given Default Rating Methodology, which limits the up-notching of secured obligations to three notches above the Corporate Family Rating.

The DIP Facility will convert to an Exit Facility upon AMR and its subsidiaries' exit from bankruptcy. At such time, an already committed $1.0 billion, five-year revolving credit will become available to the company as part of the Exit Facility. The term loan will mature six years from its issue date. Should AMR conclude the planned merger with US Airways Group, Inc., it and its primary subsidiary, US Airways, Inc. will become guarantors under the credit facility, also on an unsecured basis. In the unlikely event AMR does not timely complete the remaining steps of its reorganization; the term loan would mature on the 12 month anniversary of it becoming effective.

RATINGS RATIONALE

The rating assignment reflects: i) the very high probability of a successful exit from bankruptcy within the company's indicated timeframe of by September 30, 2013; ii) the importance of the collateral to the company's international operations; and iii) the reasonable collateral coverage based on the appraisal value.

With unrestricted cash of about $6.2 billion (about 24% of revenue) at June 30, 2013 and a well-developed plan of reorganization awaiting regulatory approvals and the confirmation hearing scheduled for 15 August 2013, American has arranged the DIP/Exit Facility to fund the future refinancing of higher coupon debt rather than to secure liquidity needed to fund its operations during its Chapter 11 proceedings. We anticipate that AMR will gain the needed approvals of its reorganization plan, leading the way to the court's confirmation of the plan and implementation by the company, which will cause the DIP facility to roll into the post-exit, post-merger debt capital.

The Collateral is important to the company's operations and franchise. American's services to and from South America represent about one-third of its international capacity. Moody's believes that American is a share leader in this market, which likely makes this part of its international franchise an important profit contributor.

The facilities provide the lenders priority administrative claim status pursuant to section 507(a)(2) of the Bankruptcy Code until the bankruptcy case concludes. The Collateral was unencumbered at the time AMR initiated its reorganization under Chapter 11 and has remained so since that time. The appraised value of the Collateral provides a good cushion for ongoing compliance with the 1.6 times collateral coverage ratio. The facility will also require minimum Liquidity of $1.5 billion while in bankruptcy and $2.0 billion following bankruptcy. The measurement of liquidity will include availability under the revolving credit facility. In the event AMR exits bankruptcy but does not complete a merger with US Airways Group, the Exit Facility will require the company to i) maintain at least $2.0 billion of liquidity; ii) maintain Net Adjusted Debt to EBITDAR of no more than 3.3 times initially, with step downs to 2.9 times by Q1 of 2014 and iii) EBITDAR of at least $3.2 billion, initially, stepping up to $3.5 billion by year end 2013.

The ratio of the DIP facilities' face value to AMR's pre-petition debt is approximately 15%. The accompanying debt service requirements should be very manageable. The incurrence of the facility obligations will allow the company to reduce its aggregate interest cost as a majority of the proceeds will retire higher rate secured debt including related accrued interest while also freeing up over 140 older aircraft albeit of modest value that presently secure American's $450 million of 10.5% secured notes (not rated).

Moody's withdrew all of the family or debt ratings it had assigned to AMR, to American and to the various industrial revenue bonds backed by unsecured guarantees from the company, except for the ratings assigned to Enhanced Equipment Trust Certificates issued by American and guaranteed by AMR, upon the family's Chapter 11 bankruptcy filing that occurred on 29 November 2011. Moody's placed the EETC ratings, including the Baa3 ratings assigned to each of the A-tranches of Series 2009-1, Series 2011-1 and Series 2011-2 on review for possible downgrade on that date and downgraded the ratings assigned to Series 2001-1 (MD-80 financing). Moody's concluded its review on 25 October 2012 by confirming all of the EETC ratings that had been on review, including the Baa3 ratings assigned to the A-tranches.

Please see the ratings tab on the issuer/entity page on Moodys.com for the last credit rating action and the rating history.

The principal methodology used in this rating was the Debtor-In-Possession Lending Methodology published in March 2009. Please see the Credit Policy page on www.moodys.com for a copy of this methodology.

American Airlines, headquartered in Fort Worth, Texas, serves more than 260 airports in more than 50 countries and territories. American's fleet of nearly 900 aircraft flies more than 3,500 daily flights worldwide from hubs in Chicago, Dallas/Fort Worth, Los Angeles, Miami and New York.

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

Michael J. Mulvaney
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 assigns Baa2 rating to American Airlines' DIP term loan
No Related Data.
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