Shares of American Airlines are collapsed today. According to reports, more than 200 pilots have retired in the last two months. However, rumours of bankruptcy crushed the stock.
CNBC reported that AMR shares were halted seven times today.
An AMR spokesperson addressed the selloff. From StreetInsider:
“While we generally don’t comment on AMR’s share price performance, there is no company-driven news that has caused the volatility in AMR shares today,” said Andy Backover Managing Director, External Communications. “The pause in trading of AMR shares was due to automatic triggers established by the New York Stock Exchange (under Rule 80C) that pause trading based on share price volatility.”
“Regarding rumours and speculation about a court-supervised restructuring, that is certainly not our goal or our preference. We know we need to improve our results, and we are keenly focused as we work to achieve that.”
Shares closed down 33% today.
We were also forwarded some commentary by CTR regarding American Airlines trading activity. Concerns seem to be tied to the refinancing of debt due October 1:
“AMR’s stock has crashed today on fears of bankruptcy. The triggering event is concern that AMR would be unable to successfully complete a EETC financing that is currently being marketed in order to refinance $828 million 7.858% A-tranche EETC’s due October 1, 2011. AMR is estimated to have $1.2 billion in unencumbered assets and unrestricted cash and short term investments of $ 5.2 billion, as of June 30, 2011. In order for AMR to do the deal currently being marketed, it likely will have to raise the coupon over the 8-8.5% price talk, in our opinion. If AMR pays off the 7.858% maturity out of cash and does not issue a new EETC, AMR’s cash position will fall to $4 billion or possibly less. AMR tends to burn cash on a seasonal basis, between October and March. This year, oil price declines would be a tailwind but a slowing economy a headwind. A minimal cash level for operating an airline the size of AMR is in the $ 2-$3 billion range in our opinion. Increasing credit card hold backs could accelerate liquidity issues. At a price, we believe AMR will be able to raise incremental liquidity but these markets are treacherous and we have little conviction on this issue. The stock is rated Fair Value with a price target of $4.50 which assumed the stock trades at 7.2x 2012 EBITDAR. This is based on investors giving management the benefit of the doubt that it can return to profitability by 2013, following successful labour negotiations.”
Photo: Yahoo Finance