American Airlines may be poised to capitalize on a Reddit-driven stock climb, with an equity issuance that will help cover its extensive near-term cash burn, according to four sources following the company. If the distressed airline is able to issue anywhere near the USD 1.1bn it’s targeting in an at-the-market deal, it would be one more example of market highs driven by the Reddit chatroom WallStreetBets leading to tangible capital structure opportunities for struggling companies.

Yesterday, AMC Entertainment was able to shave off USD 600m in first lien debt and the accompanying USD 18m in annual interest expense when an investor group opted to swap their convertible bonds into equity after an epic rise in the theater chain’s share price, as reported.

American said this morning that it’s seeking up to roughly USD 1.118bn in an at-the-market equity issuance led by Goldman Sachs. The move comes after its stock soared 33% between Tuesday afternoon and yesterday’s close, following a mention in the Reddit forum coupled with better-than-expected earnings reported yesterday morning.

American’s stock shed some of those gains today, closing at USD 17.17 and a USD 10.5bn market cap – still up 11% from Tuesday afternoon.

American’s price jump is nowhere near the stratospheric gains that Reddit favorite GameStop has seen, which pundits note is entirely divorced from fundamentals. However, to some investors, American’s sizeable market cap is somewhat at odds with its ability to grow into its capital structure if regular travel volumes don’t return quickly, given the billions in additional debt it has taken on to survive the pandemic, the sources said.

But into the current stock rally, the sources said they expect the company will be able to issue the full USD 1.118bn, if not more, and use the proceeds to fund cash burn and pave the way to address a USD 750m unsecured bond maturity in 2022.

“The equity price is definitely stacked by this Reddit craziness, so this is their chance to add this liquidity. They need to do so much more, so I’m sure more stock offerings are coming,” one of the sources said.

Issuing equity is not a new strategy for American, which over the last year has pursued debt and equity raises in the capital markets as well as government funding to ride out the impact of the pandemic. American previously had a separate USD 1bn equity distribution agreement announced in October; through 28 January the company sold around 68.5m shares of common stock at an average price of USD 12.87 per share, raising roughly USD 882.4m.

This time the airline may be able to raise more funds, and faster, the sources said. 

In the annual earnings report yesterday (28 January), American said 4Q20 revenues tumbled more than 64% to USD 4.03bn, compared with USD 11.3bn a year earlier – but sales were above analysts’ forecasts for USD 3.88bn for the quarter.

The company reduced its daily cash burn rate from nearly USD 100m in April to approximately USD 30m in 2H20 – the latter amounting to roughly USD 900m per month or USD 10.8bn annually – along with USD 1.5bn of interest expense.

As of 31 December, the company had approximately USD 14.3bn of total available liquidity and it expects to end the first quarter of 2021 with approximately USD 15bn in total available liquidity, according to the earnings release.

Theoretically, if earnings return to 2019 levels – USD 7bn in EBITDAR – American would be around 4.3x levered based on its current debt balance of USD 30bn.

American’s nearest maturity, its USD 750m 5% senior unsecured notes due 2022, traded as high as 95.5 to yield 8.636% yesterday (28 January), up from trades at 88.125 to yield 15.089% on Tuesday and 87 to yield 15.254% in December, according to MarketAxess. The notes settled back today to change hands at 94.5 yielding 9.487%.  

The issuer’s USD 2.5bn 11.5% senior secured notes due 2025 traded today at 116.01 to yield 7.456%, up from 114.25 to yield 7.896% on 27 January. Its USD 500m 3.75% senior unsecured notes due 2025 traded today at 77.5 to yield 10.696%, compared to trades at 71 to yield 13.14% on 27 January.

2021 Debtwire