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Judge OKs American Airline's Tulsa Bond Sublease

CHICAGO — A federal bankruptcy court judge signed an order Wednesday authorizing American Airline's assumption of its Tulsa maintenance base sublease, paving the way for the bond trustee on $237 million of debt to soon resume debt service payments.

Judge Sean H. Lane of the U.S. Bankruptcy Court for the Southern District of New York granted the airline's motion to enter into a settlement agreement allowing for assumption of the lease during a hearing Wednesday. American's parent, Fort Worth-based AMR Corp., filed its Chapter 11 case on Nov. 29.

The agreement is significant on several fronts. First, American will assume its sublease tied to repayment of its Tulsa bonds, signaling its commitment to maintain the base. It also removes the threat of a potential battle over the legal status of the airline's bond sublease.

The potential challenge had prompted the trustee — the Bank of New York Mellon — to withhold debt-service payments owed after the airline's November Chapter 11 filing, even though American remained current on all its payments.

The tax-exempt debt is tied to American's fleet maintenance base at Tulsa International Airport and was issued through the trustees of the Tulsa Municipal Airport Trust. A total of $450 million was issued but about $215 million is held by the airline from 2000 and 2001 issues. Another $237 million is held by investors. It includes a 1992 issue for $27.5 million, a 1995 series for $97.7 million and a 2000 series for $112.4 million.

Under the settlement, American assumes the sublease and waives its right to challenge the sublease's status. The airline escapes the risk of accelerated debt repayment or additional interest. The pact could take final effect early next month with distribution of debt service payments by early fall.

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