American Airlines weighs debt deal to refinance treasury loans

American Airlines Group Inc. is weighing a return to the debt market as soon as March to help pay back loans from the U.S. government that have helped keep the company afloat through the pandemic.

Goldman Sachs Group Inc., which last year helped United Airlines Holdings Inc. use its frequent-flier program to backstop new debt, is sounding out potential credit investors in a debt deal for American, according to people familiar with the matter. American, which backed a $7.5 billion U.S. Treasury loan with its frequent-flier program, is considering doing the same with its new debt, said the people, who asked not to be named because the matter is private. Terms are still fluid and could change, they said.

American was in the first wave of carriers to tap billions of dollars in loans included in the $2 trillion Cares Act for economic relief from the pandemic. Goldman is in talks with investors for a $7 billion to $9 billion refinancing in the coming months for the Fort Worth, Texas-based company, the people said. Discussions included the potential for a yield of 6% to 7%.

Representatives for American and Goldman Sachs declined to comment.

The airline, which borrowed under both the government’s payroll support program and a rescue lending package for carriers, is still deciding which of its government debt will be paid off in the refinancing, some of the people said.

Junk Frenzy

With central banks still priming the economy with low interest rates, demand for higher-yielding debt has soared, and junk-rated companies have been rushing to the bond and loan markets to borrow. Borrowing costs for speculative-grade issuers dropped below 4% this week for the first time ever, according to Bloomberg Barclays index data.

American got another boost recently after its stock was swept up in a rally among heavily shorted equities being targeted by an army of traders on Reddit’s Wall Street Bets forum—jumping as much as 31% during a trading session last month. Amid the trading frenzy, the airline announced plans to sell up to $1.1 billion of shares.

American’s AAdvantage loyalty program has an assessed value of $18 billion to $30 billion, American said in May, when it was negotiating with the Treasury Department to use at least part of the asset as collateral for the loans.