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American Creditors Argue For Court to Approve Confirmation Plan

CHICAGO – Backing for American Airlines’ confirmation plan could be jeopardized by a delay over the federal government’s move to block American’s merger with US Airways Group, a key creditors’ committee said in a court filing.

Holders of American’s $1.5 billion of unsecured bonds are among the airlines’ unsecured creditors who would fully recoup their holdings under the confirmation plan assembled on the premise of an American-US Airways merger.

“Absent timely entry of the confirmation order, the notable consensual environment in these chapter 11 cases, as well as the broad support for this Plan, could be put at unnecessary risk,” according to a brief from the Official Committee of Unsecured Creditors.

“While the DOJ [Department of Justice] enforcement action has unsettled creditor and stockholder expectations, deferring entry of the Confirmation Order pending the resolution of the conditions required for the debtors to consummate the plan and emerge from Chapter 11 would only exacerbate this uncertainty,” the brief said.A delay “would invite further pre-confirmation proceedings in this court to promote the parochial interests of particular constituencies.”

Bank of New York Mellon Trust Co. NA, which serves as trustee on $2.1 billion of American’s $3.3 billion of unsecured and secured municipal bonds issued for projects at the airline’s various facilities, filed a statement in support of arguments favoring court approval.

The filings were among a series urging bankruptcy court approval of the plan. Judge Sean Lean, who presides in federal bankruptcy court in Manhattan, had asked lawyers for American and other parties in the Chapter 11 case to submit by last Friday arguments for or against the legality of approving the plan after Justice’s filing of a civil anti-trust lawsuit on Aug. 13. The next court hearing is set for Aug. 29.

The court considered the plan at a hearing Aug. 15, taking testimony on various objections, and dismissing all but a portion of one filed by the U.S. bankruptcy trustee. Lane stopped short of deciding the confirmation plan’s fate after expressing concerns about whether he could take such action in light of the DOJ lawsuit.

American and unsecured creditors argued in their filings that the two processes – confirmation and the lawsuit – can legally proceed on separate tracks. The confirmation plan expressly noted that the merger still awaits regulatory approval in order for it to take effect allowing the airline to exit Chapter 11.

Approval of the plan even with the federal lawsuit pending “is fully consistent with the Bankruptcy Code, and is in the best interests of the Debtors’ economic stakeholders,” briefs read.

The federal government submitted a brief saying it takes no position on whether the court should confirm the plan. American’s parent AMR Corp. in its brief argued against any delay, saying if the government prevails the current plan would be rendered moot while the plan could be revised to reflect any possible settlement. Either way, it could not take effect until the lawsuit was resolved.

U.S. District Judge Colleen Kollar-Kotelly, who presides in the U.S. District Court for the District of Columbia, plans a scheduling conference on the DOJ lawsuit. American is pressing for a November trial date while the government wants a February date.

The municipal market is watching closely as the merger is central to American’s restructuring plan which would provide bondholders a full recovery. The bonds have traded at full value to a premium since early this year, when the proposed merger was announced and American said even equity holders would see some payout under its restructuring. Trades posted of American’s unsecured municipal bonds show a loss of value, but prices have remained in the mid-high 80s to 90s.

Justice joined with the attorneys general from six states and the District of Columbia in the complaint alleging the $11 billion all stock deal would undercut competition and hurt consumers.  

The eventual outcome also stands to affect the municipal airport sector, especially those airports where American and US Airways have a strong presence and could be subject to route changes.

Bankruptcy Court documents are accessible at http://www.amrcaseinfo.com/maincase.php

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