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American Airlines' $1 Billion of Debt to Tap `Hot' Market: New Issue Alert

American Airlines Inc., the third- largest U.S. carrier, is planning debt to take advantage of close to record-low yields even as returns on airline bonds trail the overall market.

The airline plans to sell $1 billion of debt secured by routes, takeoff and landing slots and rights to use space in airport terminals, Fort Worth, Texas-based parent company AMR Corp. (AMR) said in a March 7 statement. The five-year notes may be issued today, said a person familiar with the transaction.

Airline debt has returned 2.1 percent this year, compared with the 3.7 percent gain on overall high-yield debt, according to Bank of America Merrill Lynch index data. AMR is tapping junk-bond borrowing costs that are 8 basis points above their record low as jet-fuel prices have jumped 25 percent since the start of the year to $3.20 a gallon. The carrier is also in contract talks with its pilots, flight attendants, baggage handlers and ramp workers, who are seeking pay increases.

American is taking advantage of a “hot high-yield market,” said Vicki Bryan, senior bond analyst for Gimme Credit LLC. That will allow the company to get a cheaper coupon than it should based on risk, she said.

The extra yield investors demand to own junk bonds instead of Treasuries narrowed 5 basis points to 464 basis points yesterday, according to the Bank of America Merrill Lynch U.S. High Yield Index. Absolute yields fell 0.7 basis point to 7.366 percent, the data show. That compares with the record low of 7.285 percent reached on Feb. 22.

High-yield, high-risk, or junk, debt is rated below Baa3 by Moody’s Investors Service and BBB- by Standard & Poor’s. A basis point is 0.01 percentage point.

Yesterday’s Sales

Best Buy Co., the world’s largest consumer-electronics retailer, and BP Plc led bond sales of $12.7 billion yesterday, bringing the week’s total to $17.4 billion, according to data compiled by Bloomberg. That compares with $11.3 billion in the first two days of last week, the data show.

The sale of the American Airlines notes will be managed by Citigroup Inc., Credit Suisse Group AG and JPMorgan Chase & Co., said the person familiar with the offering, who declined to be identified because terms aren’t set. The notes may yield 7 percent to 7.25 percent, said the person.

“A big, billion dollar deal is very liquid, easy to buy into with size,” Bryan said. “Fund managers are paid to invest cash, not sit on cash. American is going to be able to get this deal done.”

Biggest Airline

AMR had been the world’s biggest carrier until 2008 when the merger of Delta Air Lines Inc. and Northwest Airlines leapfrogged it. Last year’s tie-up of United Airlines and Continental Airlines formed a new global leader, United Continental Holdings Inc.

Spreads on investment-grade debt narrowed 1 basis point to 148 basis points, according to Bank of America Merrill Lynch’s U.S. Corporate Master index. Absolute yields on the securities rose 3 basis points to 4.12 percent.

The following is a description of at least $6.04 billion of pending sales of dollar-denominated bonds in the U.S.

Investment Grade

KREDITANSTALT FUER WIEDERAUFBAU, Germany’s state-owned development bank, may sell 3-year global floating-rate notes that yield the 3-month London interbank offered rate, according to a person familiar with the offering, who declined to be identified because the terms aren’t set.

DEVELOPMENT BANK OF JAPAN, a state-owned financial institution, may sell $500 million of 5-year debt, according to a person familiar with the offering. The notes may yield 43 to 45 basis points more than the midswaps rate, said the person, who declined to be identified because terms aren’t set.

THE EUROPEAN INVESTMENT BANK may sell 5-year notes that yield 7 basis points more than the mid-swaps rate, according to a person familiar with the offering, who declined to be identified because terms aren’t set.

High Yield

PARK-OHIO HOLDINGS CORP. (PKOH), the Cleveland, Ohio-based provider of supply chain logistics, plans to sell $250 million of senior subordinated notes due in 2021, according to a March 8 statement distributed by PR Newswire. Proceeds will be used to purchase or retire 8.375 percent senior subordinated notes due in 2014 and repay term loans.

AMERICAN AIRLINES INC. plans to sell $1 billion of debt secured by routes, takeoff and landing slots and rights to use space in airport terminals, Fort Worth, Texas based parent company AMR Corp. said in a statement distributed by PR Newswire. The senior secured notes will mature in five years and may yield 7 percent to 7.25 percent, said a person familiar with the transaction, who declined to be identified because terms aren’t set.

CKE HOLDINGS INC., owner of the Carl’s Jr. and Hardee’s fast-food chains operator, plans to sell $175 million of senior pay-in-kind toggle notes due in 2016, according to a March 7 statement distributed by Business Wire. Proceeds will fund a distribution to its parent company, according to the statement. CKE was acquired by a unit of Apollo Global Management LLC last year, according to data compiled by Bloomberg.

LBI MEDIA INC., a Burbank, California-based Spanish- language entertainment company, may sell $240 million of senior secured notes due in 2019 to repay credit borrowings and redeem 11 percent senior discount notes due in 2013, according to a statement distributed by PR Newswire.

ROTECH HEALTHCARE INC., a provider of home respiratory systems, plans to sell $290 million of senior second-lien debt due 2018, the Orlando, Florida-based company said in a statement distributed by Business Wire. Proceeds may be used to repay senior subordinated debt due 2012 and to fund “strategic priorities,” according to the statement.

CLAYTON WILLIAMS ENERGY INC., a Midland, Texas-based oil and natural gas producer, plans to market $300 million of senior notes due in 2019, according to a statement distributed by Business Wire. The company may use the proceeds to repurchase its outstanding 7.75 percent notes due in 2013 and repay borrowings under a revolving credit facility.

STERIGENICS INTERNATIONAL INC., the Oak Brook, Illinois- based provider of sterilization and irradiation services, plans to issue $475 million of senior secured second-lien seven-year notes through STHI Holdings Corp., according to a person familiar with the offering. Proceeds from the notes, which are non-callable for three years, will be used to fund the purchase of the company by GTCR, a Chicago-based private-equity firm, said the person, who declined to be identified because terms aren’t set.

GRIFFON CORP., the New York-based maker of radar systems and garage doors, plans to sell $500 million of senior notes due 2018 to pay back and terminate its senior secured term loan facility, to pay down outstanding borrowings under senior secured revolving credit facilities and for general corporate purposes, according to a statement distributed by Business Wire.

EURAMAX INTERNATIONAL INC., the Norcross, Georgia-based building-materials maker, plans to sell $375 million of senior notes due 2016 to refinance its existing credit facility, S&P said in a March 7 note. The ratings company assigned the debt a B- grade. Moody’s grades it Caa1.

MEG ENERGY CORP. (MEG), a Canadian oil-sands developer, plans to sell $500 million of senior unsecured notes due in 2021, according to a statement distributed by PR Newswire. Proceeds may be used for general corporate purposes, including capital expenditures and repaying outstanding debt, according to the statement.

HYVA GLOBAL B.V. plans to sell $375 million of senior secured bonds, according to a person with knowledge of the matter. Bank of America Corp., Goldman Sachs Group Inc., Nomura Holdings Inc. and Standard Chartered Bank are managing the sale, said the people who declined to be identified because terms aren’t set.

HOA RESTAURANT GROUP LLC, whose Hooters dining chain is known for its tank-top-clad waitresses, plans to issue $165 million of debt, according to a person familiar with the offering. Proceeds may be used to repay existing borrowings, said the person, who declined to be identified because terms aren’t set.

KV PHARMACEUTICAL CO. plans to sell $200 million of senior secured notes due 2015 through a private placement, according to a March 1 statement. Proceeds will be used to pay back outstanding borrowings under credit agreements with U.S. Healthcare I LLC and U.S. Healthcare II LLC, affiliates of Centerbridge Partners, to terminate related future loan commitments, establish an escrow reserve for one year of interest payments on the notes and for general corporate purposes, according to the statement.

DELUXE CORP., a maker of personalized checks, business cards and stationary, plans to offer $200 million of senior notes due 2021, according to a March 8 statement distributed by PR Newswire. The Shoreview, Minnesota-based company may use the proceeds to repurchase outstanding 5 percent senior notes due in 2012.

BAKER & TAYLOR INC., the Charlotte, North Carolina-based book distributor, may sell $240 million of senior secured five- year notes, according to a person familiar with the offering. Proceeds may be used to pay back debt, said the person, who declined to be identified because terms aren’t set.

KRATOS DEFENSE & SECURITY SOLUTIONS INC. plans to sell as much as $325 million of senior secured notes due 2017, the company said in a Feb. 7 regulatory filing. A majority of bondholders that own the company’s existing 10 percent senior secured notes due 2017 will permit Kratos to offer the new notes in connection with its purchase of Herley Industries Inc., according to the filing.

MAXUM PETROLEUM OPERATING CO., a marketer and distributor of fuel, plans to sell $250 million of eight-year bonds, according to a person familiar with the transaction. The Greenwich, Connecticut-based company is selling corporate bonds for the first time, according to data compiled by Bloomberg. Proceeds may be used to repay Maxum’s bank loan and for general corporate purposes, said the person, who declined to be identified because terms aren’t set.

SI ORGANIZATION INC., the former Lockheed Martin Corp. unit once known as Enterprise Integration Group, may sell $175 million of senior subordinated notes, according to S&P. The proceeds may be used with $340 million of bank debt and $370 million of new common stock to pay for its acquisition by Veritas Capital, S&P said.

Offerings in Pipeline

SUNAC CHINA HOLDINGS LTD., a developer based in Tianjin, postponed a series of investor credit meetings after it hired Goldman Sachs Group Inc., Deutsche Bank AG and Standard Chartered Plc to help it with a sale of dollar bonds, according to a person familiar with the offering. The five-year notes may be rated B+ by Standard & Poor’s, said the person, who declined to be identified because terms aren’t set.

DELONG HOLDINGS LTD. (DLNG), a Singapore-listed Chinese steelmaker, may attempt to sell dollar bonds in the “second half” if it gets lower interest rates, Chairman Ding Liguo said in an interview in Beijing while attending the National People’s Congress. The company canceled a planned sale of the debt on Feb. 15 after meeting investors. “We aim to cut the bond’s coupon rate to 10 percent from 14 percent,” he said. The sale is “subject to our need for capital in a planned acquisition,” he said, without saying how much the company wanted to raise.

ASTON RESOURCES LTD. (AZT), the Australian mineral exploration company, is considering selling bonds in the U.S. to help raise funds to develop its Maules Creek coal project in New South Wales, Chief Executive Officer Todd Hannigan said at a business luncheon in Sydney March 3. Aston may raise $300 million to $500 million, he said.

MONGOLIA is planning its first sale of sovereign bonds, seeking about $500 million, to establish a benchmark that would help companies from the resource-rich nation located between China and Russia raise funds from credit markets. The sale will “probably” take place in 2011, pending parliament’s approval, Vice Minister of Finance Ganhuyag Chuluun Hutagt said March 3 in an interview in Ulan Bator.

BAA LTD., the owner of London’s Heathrow airport, said it plans to sell bonds in dollars for the first time this year as it seeks to fund the renovation of Europe’s biggest hub. The company is owned by Spain’s Ferrovial SA.

THE PHILLIPINES plans to sell dollar bonds this year as part of its 2011 borrowing program, Finance Secretary Cesar Purisima said Feb. 9 in Manila. The country is sticking to a plan to narrow the budget deficit to 3.2 percent of gross domestic product, Purisima said in an interview.

AVG TECHNOLOGIES, the Czech maker of internet security software, plans to sell bonds to U.S. investors to raise money for dividends and acquisitions, said Siobhan MacDermott, AVG’s Prague-based investor relations officer, in an interview Feb. 10. The producer of a free antivirus program that competes with McAfee Inc. and Symantec Corp. is seeking to raise $300 million of debt, MacDermott said.

TATA STEEL LTD., India’s biggest producer of the alloy, plans to sell $500 million of debt by the middle of this year, CNBC-TV18 news channel reported, without saying where it got the information.

RODOPA EXPORTACAO DE ALIMENTOS & LOGISTICA LTDA, a Brazilian beef producer, may sell as much as $100 million in five-year bonds in the second half of this year or early next year, Chief Executive Officer Sergio Longo said Feb. 4 in an interview at the company’s headquarters in Sao Paulo.

(Added Feb. 8. See http://www.tatuibi.com.br/ )

GAIL LTD., a government-run gas distributor in India, may sell $200 million of dollar-denominated bonds, Finance Director Raj Kumar Goel said in New Delhi.

PT SULFINDO ADIUSAHA, an Indonesian company which makes chlorine and chemicals, hired Barclays Plc and Standard Chartered Plc to help it sell five-year, fixed-rate dollar bonds, according to a person familiar with the matter.

INKIA ENERGY, a unit of Israel Corp., may sell bonds in the U.S. to finance expansion of its electricity generation business, according to a spokesman for the holding company. The company plans to raise $250 million from the sale and is in discussions with several foreign banks, Calcalist reported Jan. 9, without saying where it obtained the information.

AMERICAN INTERNATIONAL GROUP, the insurer rescued by the U.S. government, is contemplating a new debt sale, a person familiar with the matter said. The firm hasn’t considered a timeline for when it might sell more bonds, said the person, who declined to be identified because the terms aren’t set. AIG sold $2 billion of bonds Dec. 1 in its first offering since it was rescued by the U.S. government in 2008.

PTT EXPLORATION & PRODUCTION PCL, Thailand’s only listed oil and gas explorer, plans to sell bonds denominated in dollars, according to a person familiar with the transaction. PTT Exploration hired Barclays Plc to manage the sale, said the person, who declined to be identified because terms aren’t set. Barclays is arranging a U.S. dollar-denominated medium-term note program for the company, the person said.

AL BARAKA BANK EGYPT ESC, a unit of Bahrain-based Albaraka Banking Group (BARKA), may sell dollar-denominated Islamic bonds in the second half of 2011, the bank’s chairman said Sept. 29. The bank hasn’t decided on the size of the bond, he said.

(Added Sept. 30. See

To contact the reporter on this story: Sapna Maheshwari in New York at sapnam@bloomberg.net; Mary Schlangenstein in Dallas at maryc.s@bloomberg.net

To contact the editor responsible for this story: Alan Goldstein at agoldstein5@bloomberg.net.

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