AMR, bondholders spar over stay pending appeal on make-whole

, Bloomberg


American Airlines

AMR Corp. isn't willing to hold up refinancing $1.32 billion in aircraft bonds unless bondholders provide a bond or the equivalent insuring the parent of American Airlines Inc. won't sustain a loss if interest rates rise in the meantime.

U.S. Bank NA, the indenture trustee for the bondholders, is appealing from a Jan. 17 opinion by the bankruptcy judge saying the debt can be repaid ahead of maturity without payment of a so-called make-whole premium. AMR is intent on refinancing to save $200 million by issuing $1.5 billion in new aircraft bonds at today's lower interest rates.

The bank filed papers last week for a stay pending appeal, arguing it shouldn't be required to post a bond. AMR pointed out in a filing on Feb. 15 that a 1 percent rise in interest rates will cost $60 million in the refinancing.

Rather than post a bond, AMR suggested that the indenture trustee agree that any losses be recovered by deduction from the repayment on the bonds through the refinancing. AMR also wants U.S. Bank to agree on an accelerated appeal with briefing completed by mid-March.

AMR already filed papers asking for the appeal to be taken directly to the U.S. Court of Appeals, avoiding an intermediate appeal in federal district court. The appeal involves issues never before decided under Section 1110 of the U.S. Bankruptcy Code giving additional protection to lenders holding loans secured by aircraft.

In regulatory filings last week, AMR included the definitive merger agreement with US Airways Group Inc. The filings also included a so-called merger support agreement where creditors holding $1.2 billion in debt agree to support the merger.

The papers require AMR to file a motion this week for court approval of the support agreement. The agreement requires consummation of the merger within 10 months. The agreements don't specify exactly when AMR must file the definitive Chapter 11 plan and disclosure statement through which the merger will be carried out.

The papers show that no distributions will be made on claims between AMR and its subsidiaries such as American Airlines and American Eagle.

For details on the merger and AMR's forthcoming reorganization plan, click here for the Feb. 14 Bloomberg bankruptcy report. For details on the make-whole dispute, click here for the Jan. 18 Bloomberg bankruptcy report.

The plan calls for existing shareholders to receive 3.5 percent of the stock of the merged companies. Closing at $1.30 the day before the announcement, the stock finished on Feb. 15 at $2.54 in over the counter trading, a near doubling of the price in two days' trading.

Fort Worth, Texas-based AMR listed assets of $24.7 billion and debt totaling $29.6 billion in the Chapter 11 reorganization begun in November 2011. American Airlines entered bankruptcy with 600 aircraft in the mainline fleet and another 300 with American Eagle, the feeder airline.

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