AMR Debt Rating Nears Junk Status

Debt of AMR Corp. (ticker symbol: AMR) and its American Airlines Inc. unit was cut to within a notch of junk status by Moody’s Investors Service because of increased risk brought on by AMR’s $4.2-billion purchase of bankrupt Trans World Airlines Inc.

The credit-rating company lowered AMR’s senior unsecured debt rating one notch to Baa3, and cut American Airlines’ rating on the debt by two notches, also to Baa3. About $600 million of debt was affected by the move.

Moody’s has a negative outlook on the debt, indicating it may lower ratings again, as Fort Worth-based AMR’s profit probably will be squeezed by slowing sales and merger costs, Moody’s said.

“The company will see little opportunity for revenue synergies in the short term,” Moody’s said in a report.

AMR completed its purchase of TWA on Monday to become the world’s largest carrier. The company’s debt ratings also are on the verge of junk status at Standard & Poor’s.

In a statement released after the ratings cut by Moody’s, AMR said “credit-rating downgrades often initially result from a large-scale acquisition in which incremental debt is raised.”

The company noted that in the past Moody’s had rated AMR’s debt lower than that of American Airlines--reflecting the view that claims on the holding company are subordinate to the operating unit--and said it is “evaluating mechanisms that would provide additional credit support to AMR unsecured obligations.”

AMR shares fell 10 cents to close at $35.20 on the New York Stock Exchange.