American Airlines bonds tumble after US files suit
Aug 13 (IFR) - American Airlines unsecured bonds tumbled sharply in price in the secondary market on Tuesday, traders said, after the Justice Department filed a suit to block the merger of the company's parent with US Airways - a tie-up that would create the largest US carrier.
American's 10% and 9.75% unsecured 2021 notes each slipped from around 118 on Monday to 105 on Tuesday morning, one high-yield trader said, while the airline's 6.25% convertible notes due 2014 traded around 104-105, down from 116 the previous day.
Shares in American meanwhile fell some 46% on news of the lawsuit.
Parent AMR Corp and US Airways agreed in February to the USD11bn merger, which would create a company with 6,700 daily flights and annual revenue of roughly USD40bn. The deal was intended in part to help American Airlines emerge from bankruptcy.
The airlines secured EU approval earlier this month but the merger still requires approval from the Bankruptcy Court and the Justice Department. American filed for bankruptcy in November 2011.
"This is just going to take a little longer," Roger King, airline analyst at Credit Sights, said of the merger.
"The judge will keep American in bankruptcy forever if it makes sense to wait while the regulatory process works out."
A second high-yield trader said American EETCs - enhanced equipment trust certificates, which typically use a carrier's aircraft as collateral, and so are often seen differently by investors than unsecured bonds - were holding steady Tuesday in secondary trade.
The 4% EETC notes due 2025 and the 4.95% EETC notes due 2023 were off just half a point at 94.50 and 100.50, respectively, the trader said.
Meanwhile US Airways 5.375% notes due 2023 saw one large trade today at 97. Last Thursday, some larger USD1m-plus trades were seen at 97.50 and 98.25. Its share price is down about 12% on the day.
American Airlines is rated D by S&P. Moody's rates the EETCs Baa3, but does not currently provide a corporate family rating. US Airways, currently the fifth largest US airline, is rated B3/B-. Yesterday, Moody's placed the B3 corporate family rating on review for upgrade in anticipation of a completed merger.
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