Investors bet American Airlines will default on debt

Investors are betting American Airlines will file for bankruptcy for the second time in a decade. The price for the airline’s credit default swaps has risen since February and outstripped other big US carriers. Historically, paying more for swaps, a financial instrument to insure against corporate default on debt, has indicated a greater risk of that happening. Bloomberg data show that investors think the airline’s default probability in the next five years is nearly 100%. American’s five-year credit default swaps hit 6,659 basis points, according to IHS Markit data. The price has risen more than 4,000 per cent in the past three months. The market priced swaps for United at 3,677bp, for Delta at 1,212bp, and for Southwest at 505bp. American’s debt totals $34b, well above the $23b on the balance sheets at both Delta and United, and almost six times as much as Southwest. That reality is driving speculation that American, which filed for Chapter 11 nine years ago, could be headed back to court — what lawyers grimly call “Chapter 22”. “It truly is just where their debt level is relative to others,” said Berenberg analyst Adrian Yanoshik. “I could give you other reasons, but when you peel the onion back on those sub-reasons, they tend to end up with: They have more debt.”<br/>