American Airlines Gets $1.5B In Additional Financing; Judge Denies Objections

by Tara Arick on January 22, 2013 · 0 comments

in Banking

- From LexisNexis® Mealey’s™ Daily Legal News.

The federal bankruptcy judge presiding over the Chapter 11 bankruptcy proceeding of AMR Corp., the parent company of American Airlines Inc., on Jan. 17 approved $ 1.5 billion in additional financing for the airline, overruling the objections of the indenture trustee (In Re: AMR Corporation, No. 11-15463, Chapter 11, S.D. N.Y. Bkcy.).

AMR filed for Chapter 11 bankruptcy in the U.S. Bankruptcy Court for the Southern District of New York on Nov.

29, 2011. American Airlines, as an affiliate of AMR, filed for Chapter 11 bankruptcy in the same court.

Cash, Obligations

On Oct. 9, American Airlines moved for approval of $ 1.5 billion in new secured first priority financing, which would provide cash on hand to repay the obligations of American Airlines.

U.S. Bank National Association, in its capacity as loan trustee and security agent for the prepetition financing transactions, objected to American Airlines’ motion, arguing that American Airlines may not repay those obligations without also paying U.S. Bank a premium referred to as a “Make-Whole Amount.”

Prior to the bankruptcy, American Airlines was party to three separate financing transactions, each of which is secured by a discrete pool of aircraft. One transaction, entered into in 2009, involved the issuance of notes secured by certain of the aircraft. It was called the 2009-2 Secured Notes Financing.


The remaining two transactions were structured as enhanced equipment trust certificate (EETC) financings. They were called the 2009-1 EETC Financing and the 2011-2 EETC Financing.

As of Sept. 30, American Airlines was indebted in the principal amount of $ 445,618,425 for the 2009-1 EETC Financing, $ 174,163,156 for the 2009-2 Secured Notes Financing and $ 703,645,330 for the 2011-2 EETC Financing, plus all unpaid interest, fees, costs and expenses under the applicable indentures and related documents.

U.S. Bank argued that the Make-Whole Amount was due because American Airlines is voluntarily redeeming the prepetition notes. The airlines counters that its bankruptcy filing triggered an event of default that resulted in acceleration of the prepetition notes, such that the amounts due and payable include outstanding principal and interest, but not a “Make-Whole Amount.”

11 U.S. Code Section 1110

Bankruptcy Judge Sean H. Lane said that under 11 U.S. Code Section 1110, the noteholders are entitled to receive full repayment of principal and accrued interest without a “Make-Whole Amount.”

The airline is, therefore, within the limits circumscribed by 11 U.S. Code Section 1110, which simply requires it to comply with the terms of the indentures. Consequently, the bankruptcy judge approved American Airlines’ motion for additional funding.

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