Exit Plan Advances for Bankrupt American

CHICAGO — Preliminary voting results show a majority of bankrupt American Airlines' shareholders and creditors — which include holders of the airline's $3.3 billion of municipal bonds — have signed off on a proposed reorganization, putting the plan on a path for court approval later this month.

"This is another important milestone toward our launch of the new American," Tom Horton, president of American parent AMR Corp. said in a statement announcing the preliminary results.

The airline entered bankruptcy with about $3.3 billion of tax-exempt revenue debt issued to fund projects at its hub airports, maintenance bases and other facilities, or to refund debt. About $1.5 billion was lumped into the unsecured category, meaning it was not secured by an asset or lease, and carried only an airline guaranty.

The other $1.8 billion of municipal bonds was secured by some form of collateral, such as a lease or leasehold mortgage interest. The airline assumed its leases tied to debt repayment at those airports and is making good on payments. Those bondholders did not cast a vote on the reorganization.

Unsecured creditors are expected to recoup their full investment, unlike past airline bankruptcies where unsecured municipal bond holders received 20 cents to 60 cents on the dollar.

Judge Sean Lane of the U.S. Bankruptcy Court for the Southern District of New York in Manhattan will hold a confirmation hearing on Aug. 15. The Fort Worth, Texas-based airline began soliciting votes on June 7 and voting ended on July 29.

The effective date for the plan and American's exit from Chapter 11 is expected to coincide with the closing of its merger with US Airways in an $11 billion, all-stock deal. Officials hope to close the deal this quarter but federal and European regulatory approval is needed.

The union would create American Airlines Group Inc. with its headquarters remaining in Fort Worth. US Airways shareholders are to receive stock valued at 28% of the new airline with the remainder paid out to AMR's creditors and shareholders. The airline filed bankruptcy in November 2011. At least 88% of ballots received and tabulated for each of eight classes of claims voted in favor of the plan.

The city of Fort Worth and Alliance Airport Authority Inc., which issued revenue bonds for an airline maintenance facility, filed an objection to the plan because it appears to discharge a consent order involving environmental cleanup costs.

One creditor filed an objection saying the plan does not adequately provide for "full recovery" to claims lumped into a category of disputed single-dip general unsecured claims. Most unsecured bondholders fall into the categories of allowed single-dip and double-dip claims, meaning they enjoy a pledge from both American and AMR.

Municipal buyers embraced the merger and reorganization proposal because it makes unsecured claims whole. The airline also ultimately opted against challenging the status of leases tied to secured bonds. American's bonds — both secured and unsecured — have traded at full value to a premium since early this year.

Under the plan, unsecured creditors receive new common stock with a trading value estimated to pay their claims in full, including unpaid post-petition filing interest. The airline cautions that the market will ultimately determine the value once the stock begins trading.

"These estimates are premised on a number of assumptions and the actual recoveries received by Holders may be significantly less," American's disclosure statement says. The recovery estimates assume a constant price per share of $16.97 for new coming stock for the 120 days following American's emergency from bankruptcy.

The airline's unsecured debt was tied to projects at Dallas-Fort Worth International Airport, Alliance Airport, Luis Munoz Marin International Airport in San Juan, Puerto Rico, Chicago's O'Hare International Airport, and Newark Liberty International Airport. The secured bonds were issued for projects at New York City's John F. Kennedy International Airport, Los Angeles International Airport, and for its maintenance base at Tulsa, Okla. A portion of the airline's older New York debt is being treated as an allowed unsecured claim under a settlement.



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