Air junk bonds? CreditSights tries to put a value on some unusual notes

Wednesday, December 14, 2011

American Airlines’ heavily overcollateralised airline bonds may be less secured than many investor believe

Comment by: Anonymous. Posted 12 years ago [2011-12-15 02:41:44]

I'm not familiar with the AMR details, but the general concept in airline bankruptcies is that the airline will affirm leases of its "good" aircraft and let the "bad" (old or fuel-inefficient) aircraft leases lapse. Hence, an AMR bond that is backed by "150 old aircraft" may not be the right bond to buy at present.

Comment by: Mike Peterson. Posted 12 years ago [2011-12-14 13:51:35]

Thanks to the subscriber below for pointing out that our interpretation of the report was slightly garbled. The reference to market value/base value has now been corrected – above.

Comment by: Anonymous. Posted 12 years ago [2011-12-14 13:41:16]

Creditflux: However, these appraisals are not based on the market value of the aircraft, as is standard for airlines bonds, but estimates of future cashflows. CreditSights: The 150 aircraft in the AMR 10.5s' collateral pools are uniquely appraised at market value, not the usual appraisers' base value. Base value is the sum of discounted future estimated cash flows, subject to assumptions and covered by extensive disclaimers. Market value will fluctuate above or below base value depending on model supply and demand. Base value does not include transaction costs of older aircraft, not does it appear to recognize a longterm high fuel cost environment.

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