American Airlines bonds hold firm amidst equity whiplash, 2Q21 update and Fed Chair testimony — Market React

American Airlines bonds held firm today while stock investors had a knee-jerk reaction to the company’s 2Q21 business update. Market-moving remarks from Fed chairman Jerome Powell also contributed to trading activity in the situation, noted multiple trading sources.

American today revealed that it expects its 2Q21 revenue to total USD 7.475bn, down roughly 37.5% compared to 2Q19. The company previously guided to a revenue decline of approximately 40%. In a somewhat more positive light, as of 30 June liquidity is expected to total USD 21.3bn, roughly USD 1.3bn higher than prior guidance. By comparison, liquidity as of 31 March totaled USD 17.3bn. 

Operationally, American flew 54.6bn total available seat miles in 2Q21, down 24.6% compared to 2Q19 and at the lower end of guidance of down 20% to 25%. Also in the most recent quarter, the company’s completion factor was 98.6% and its on-time arrivals rate was 82.1%, which is the best performance the company has seen on both metrics in a second quarter. 

American’s equity traded as high as USD 21.45 per share today before settling this afternoon at USD 20.62 per share and a market cap of USD 13.126bn, up 3% from yesterday’s close. 

The USD 3.5bn 5.5% senior unsecured notes due 2026 traded today at 106 to yield 4.106%, in line with recent levels, according to MarketAxess. Its USD 2.5bn 11.75% senior secured notes due 2025 traded today at 124.813 to yield 4.847%, in line with recent levels. 

“American’s liquidity is holding steady, but as a consumer company, it is directly exposed to inflation and any spending patterns, so it makes sense that any prolonged expectations would spook equity holders a bit,” said a sellsider.

Of note on a macro scale, Fed chair Powell’s prepared remarks for his Semiannual Monetary Policy Report to Congress stated that inflation “will likely remain elevated in coming months before moderating.” Powell also stated that the US economy has some time before reaching the Fed’s threshold of “substantial further progress” toward recovering, which would trigger a roll-back of crisis-era asset purchases. 

2021 Debtwire

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