The highly priced bank debt of Northwest Airlines and American Airlines has been swapping hands after Delta Airlines announced a fare reduction strategy that could spark a price-war among similar carriers. "Everything contracted in the airline sector because Delta has taken the first step towards a fare war," said a loan trader. Some lenders are wary that the names are too leveraged, but there are plenty out there attracted by the high spreads and collateral coverage, said traders.
American and Northwest Airlines have cash on the balance sheet and are in liquid positions, said Roger King, senior analyst at CreditSights. King noted that the two air carriers are completely collateralized by restricted cash and other assets. American has aircrafts and cash, while Northwest is collateralized by the route authority in the Pacific, particularly in Japan, he explained. Northwest's route authority in the Pacific is unique and valuable and could be worth at least $2 billion dollars, King said.
Northwest Airlines' $575 million "A" and $400 million "B" loan traded in the 100 1/4-100 3/4 and 102 1/2-103 range, respectively. The "A" loan has a coupon of LIBOR plus 5 1/4% and the "B" is priced at LIBOR plus 6 3/4%.
American Airlines' $250 million "B" loan, that has a spread of LIBOR plus 5 1/4%, traded at 101 1/4-101 5/8. The company's $600 million revolver was quoted around 99 1/4-99 5/8 and offers LIBOR plus 4 3/4%.
Meanwhile, Delta's $300 million revolver and $200 million term loan were quoted at 99 7/8-100 3/8 and 100 7/8-101 1/2, respectively. The revolver has a spread of LIBOR plus 4% and the term loan LIBOR plus 6%.
