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U.S. airlines have increased the size of debt and equity fundraisers this week to nearly $ 10 billion after receiving a warm welcome from investors, continuing a global capital frenzy industry triggered by the pandemic.
American Airlines increased its debt volume on Wednesday, suspending a $ 500 million loan but adding an additional $ 1 billion to its secured obligation, bringing the total to $ 2.5 billion. This added to a $ 2 billion fundraiser on Tuesday, split roughly evenly between stocks and convertible notes that were themselves increased by $ 1.5 billion.
The new bonds will be backed by American routes, slots and gates at airports around the world.
The company’s fundraising follows Alaska Airlines on Tuesday, which issued nearly $ 1 billion in debt, up from the proposed $ 674 million, backed by 61 planes, representing 28% of the airline’s fleet.
Meanwhile, United Airlines is looking to raise $ 3 billion in bonds and $ 2 billion in loans by the end of the week, in a previously announced deal that uses brands, member data. and the Chicago Airline Frequent Flyer Program cash accounts. as a guarantee.
“There is a lot of creativity in the way you access capital,” said John McClain, portfolio manager at Diamond Hill Capital Management. “For businesses like these, anything that isn’t bolted to the wall is for sale right now. ”
The wave of offers comes as airlines seek to contain daily cash outflows of tens of millions of dollars, as they continue to operate emaciated schedules. US demand for air travel has improved since the spring but remains historically weak.
Capital markets have been bolstered by support from the Federal Reserve, helping to boost investor confidence and open the floodgates for companies looking to raise funds to help them weather the pandemic.
“Airlines don’t know how long this slowdown will last,” said Helane Becker, analyst at Cowen. “Right now the Fed is accommodating, so strengthen the balance sheet, raise lots of liquidity and be in a position to win the recovery. In fact, being able to be there for the recovery.
So far, capital markets and lenders have largely delivered on their promises. Ms Becker calculated that U.S. airlines raised $ 46.5 billion this year, not counting the $ 50 billion in government aid approved by lawmakers in March.
But investors have discriminated on the basis of which airline is entering the market. Alaska will pay an interest rate of 4.8% on the seven-year debt it contracted on Tuesday, while American’s five-year bond on Wednesday came with an 11.75 coupon for hundred, according to people familiar with the prices.
United’s fundraising, meanwhile, is their second attempt at a deal. A plan for increase debt in may failed because investors were put off by the old planes pledged as collateral and United were unwilling to pay the high borrowing costs demanded as a result.