AMR $250 million discount cash-to-zero convertible talked at 6.25-6.75%, up 40-45%

Nashville, Aug. 4 - American Airlines Inc. parent AMR Corp. launched $250 million of 20-year discount cash-to-zero convertible notes talked to yield 6.25% to 6.75% on the issue price with a 40% to 45% initial conversion premium, for pricing after the close Monday.

Joint bookrunners of the Rule 144A deal are Merrill Lynch & Co. and Morgan Stanley. Co-managers are Citigroup, Credit Suisse First Boston and JPMorgan.

The issue will pay a cash coupon for five years. Price talk on the yield-to-maturity is based on a discounted issue price, estimated at 38.308. At the midpoint of talk, the yield-to-maturity on the face amount would be about 2.5%, according to underwriters.

The senior unsecured notes will be non-callable for five years, with puts in years five, 10 and 15. There also is a contingent conversion trigger of 120%.

Holders will have full dividend protection.

The issue is expected to be rated Caa2 by Moody's Investors Service.

Standard & Poor's Corp. rated the convert CCC with a negative outlook. S&P upgraded AMR and American Airlines in June, based on expected earnings and cash flow improvement as a result of the April 2003 cost-saving agreements with labor groups.

AMR remains highly leveraged and vulnerable to any further revenue deterioration, S&P said, but near-term liquidity is adequate with about $2.1 billion of unrestricted cash.

There is a $50 million greenshoe available.

AMR said proceeds would be used for working capital and general corporate purposes.

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