American Airlines Plans To Raise $3.5B In New Financing; Top Analyst Sees Stock Upside Potential

American Airlines Group Inc. (AAL) is planning to raise as much as $3.5 billion from stock and notes offerings, as the ailing U.S. carrier grapples with the financial fallout of the travel freeze triggered by the coronavirus pandemic.

The U.S carrier plans to raise $1.5 billion from selling shares and convertible notes. It will also offer $1.5 billion aggregate principal amount of secured senior notes due 2025. Upon closure of the notes offering, the airline seeks to enter into a new $500 million term loan B facility due 2024.

As part of the share and convertibles notes offering, the airline will grant the underwriters a 30-day option to purchase up to $112,500,000 of shares of common stock, as well as a 30-day option to buy up to $112,500,000 in aggregate principal amount of convertible notes.

American Airlines said that it expects to use part of the net proceeds from the notes offering and borrowings under the term loan to refinance its delayed draw term loan facility it entered into on March 18 and is scheduled to mature on March 17. The net proceeds from the stock and convertible notes offerings will be used for general corporate purposes and to boost its liquidity position, the air carrier said.

The stock has lost 44% of its value so far this year as stringent travel restrictions tied to the coronavirus pandemic have brought travel demand to an almost halt. U.S. airlines have been burning through billions of dollars in the first quarter incurring huge losses and implementing broad cost-cutting plans, as well as taking steps to shore up its cash buffers.

Shares dropped 3% to $16 on Friday. Looking ahead, the $13.78 average analyst price target implies another 14% downside potential in the shares in the coming year. (See American Airlines stock analysis on TipRanks).

Overall, the Street has a Moderate Sell consensus on the stock with analysts divided between 8 Sell ratings and 3 Hold ratings versus 3 Buy ratings.

Meanwhile in a more optimistic outlook, five-star analyst Helane Becker at Cowen & Co last week raised the stock’s price target to $20 from $15, while maintaining a Buy rating, saying that the air carrier should have enough cash buffers to weather the crisis without having to file for Chapter 11 restructuring.

“We view the shares as a contrarian play and a stock that is likely to outperform as demand improves,” Becker wrote in a note to investors.

Related News:
Global Airlines Are Set To Lose $84.3 Billion In 2020, IATA Says
United Airlines Secures $5 Billion Loan To Shore Up $17 Billion Liquidity Chest
Airbus Gets No New Aircraft Orders In May Amid Aviation Crisis

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