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American Refinances Government Loans Using AAdvantage Loyalty Program

American Refinances Government Loans Using AAdvantage Loyalty Program
Joe Cortez

American Airlines will use their AAdvantage loyalty program to offer $5 billion in secured notes and credit facilities to pay back the loans owed to the U.S. Treasury. The new financing round will be backed by a new airline subsidiary, formed as an exempted company located in the Cayman Islands.

After accepting a government loan as part of the first COVID-19 bailout package, American Airlines will refinance them through a $5 billion offering of senior secured notes and a secured term loan credit facility – all backed by the AAdvantage loyalty program. In a press release, the Fort Worth-based announced the new financing round through a newly formed company based in the Cayman Islands.

Financing Round Split Between $2.5 Billion Each of Senior Secured Notes and Credit Facility

Under their plan, the refinanced debt will be split between an offering of senior secured notes due 2029, and a senior secured credit facility. Each will be backed by the AAdvantage loyalty program, through the airline’s subsidiary.

“The Notes and New AAdvantage Term Loan Facility will be secured on a pari passu senior basis by a first-priority security interest in American’s AAdvantage program,” the press release reads. “Including American’s rights under certain related agreements, intellectual property and other collateral related to the AAdvantage program.”

In turn, American will use the proceeds to pay off their loans taken from the U.S. Department of the Treasury. In April 2020, the carrier announced they would have a $4.75 billion loan option available to them as support during the COVID-19 pandemic. Any funds raised above the loan amount will go towards other “general corporate purposes,” including the repayment of other debt.

The loan ends an eight-month process for the airline, after valuing the loyalty program as high as $31.5 billion. When asked if they would feel any regret about using AAdvantage for financing, American president Robert Isom told the Cowen 2020 Global Transportation and Sustainable Mobility Conference: “We are not sorry at all we did this.”

American Last of the U.S.-Based Legacy Carriers to Take Loans Against Loyalty Program

With the announcement, American is joining their competition in using the loyalty program to finance debt to survive the novel Coronavirus crisis. In June 2020, United took a $5 billion loan against their MileagePlus loyalty program, while Delta raised $6.5 billion from the SkyMiles program.

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