American Airlines Seeks Approval of Merger Settlement

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CHICAGO – American Airlines will ask the bankruptcy court next week to approve an agreement that settles the federal government’s antitrust lawsuit against American’s proposed merger with US Airways Group Inc.

Bondholders have already put their stamp of approval on the settlement with buyer interest driving up prices on many of American’s unsecured bonds, some of which were already trading at a premium.

U.S. Bankruptcy Court Judge Sean Lane will hold a hearing on Nov. 25 in his Manhattan courtroom to consider the settlement and its impact on the reorganization plan of American’s parent AMR Corp. Lane had approved the confirmation plan in September pending the outcome of the antitrust lawsuit.

“This process resulted in a fully-consensual plan that, based on current trading values, will provide a full recovery to holders of allowed claims (including postpetition interest) and a substantial distribution to holders of Allowed AMR equity Interests,” American said in a filing last week.

Holders of American’s unsecured municipal bonds fall under the category of allowable claims. The airline has continued making payments throughout the bankruptcy on its secured bonds. The airline has a total of $3.3 billion of municipal revenue bonds issued for airport facilities, maintenance bases, or to refund outstanding debt.

“As confirmed by the overwhelming votes in favor of the plan and the merger, the plan represents a remarkable, if not unprecedented, achievement, particularly in an airline Chapter 11 case,” American noted. Past airline bankruptcies resulted in payouts of between 20 cents and 60 cents for unsecured holders and some airlines challenged, with mixed results, the lease status on secured bonds.

The proposed settlement announced last week requires that American and US Airways divest slots, gates, and ground facilities at seven airports across the county to resolve the government’s anti-competition concerns. The Department of Justice filed the complaint in August, joined by some state attorneys general.

The $11 billion merger is the centerpiece of American’s reorganization plan. About $1.5 billion of the airline’s $3.3 billion of tax-exempt revenue bonds issued for projects at its various airport facilities fall into the category of unsecured claims, meaning they are backed solely by the bankrupt airline’s repayment pledge.

The bonds had been trading at full value after the merger plans were announced early this year but had taken a hit afterward.

American’s unsecured Chicago O’Hare International Airport bonds were trading at a premium last week, up to 113 cents on the dollar from 100 cents on the dollar last month. An unsecured Dallas-Fort Worth Texas International Airport bond traded last Thursday at 117 cents up from 90 cents on the dollar in August when it was unclear whether American could resolve the DOJ challenge.

American’s Alliance Airport bonds were previously trading at between 95 cents and 100 cents and had shot up to 113 cents earlier this month amid reports that American and US Airways were in negotiations to resolve the lawsuit. The bonds hit a high of 118 cents on the dollar in trades posted last Thursday.  Trades on another series of Alliance bonds hovered between 104 cents to 106 cents last month with prices rising to 113 cents in Thursday trades.

An unsecured New York City airport-related unsecured bond traded at a range of 102 cents to 116 cents, up from 94 cents in September. Prices last month had risen to 107 cents to 110 cents.

Trades on secured bonds backed by collateral or assets have mostly held steady.

One obstacle is a separate antitrust lawsuit filed by a private party that has not been resolved. American argues in filings that its settlement with the U.S. Department of Justice addresses issues outlined in the private antitrust complaint and should not hold the merger up. American hopes to complete the merger and exit Chapter 11 next month. It filed for bankruptcy in November 2011.

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