AMR Wins U.S. Court Approval for $1.5 Billion Financing

By David McLaughlin – Jan 18, 2013 12:01 AM ET

AMR Corp. (AAMRQ), the American Airlines parent restructuring in bankruptcy, won court approval for $1.5 billion in aircraft financing, defeating bondholder opposition to a plan to repay debt.

U.S. Bankruptcy Judge Sean Lane in Manhattan approved American’s request for the financing in a decision filed yesterday, overruling an objection from a noteholder trustee that said the company owes a premium called a make-whole amount.

“The noteholders here are entitled to receive full repayment of principal and accrued interest without a make-whole amount, which is exactly what they bargained for in these circumstances,” Lane said.

AMR, which filed for bankruptcy in 2011, sought court approval in October for the financing to take advantage of lower interest rates, saying it may save more than $200 million in interest expense. The company said it planned to redeem about $1.3 billion in debt backed by aircraft.

The proposal was opposed by trustee U.S. Bancorp, which sued the Fort Worth, Texas-based airline in bankruptcy court. It said AMR was required to pay the make-whole amount.

Make-whole provisions, under which investors receive a premium if the securities are redeemed early, are included in credit agreements to create a disincentive for borrowers to call bonds before their scheduled maturity. Lenders would rather keep the current high-coupon debt than have to reinvest the cash into lower-yielding notes.

The case is in re AMR Corp., 11-15463, U.S. Bankruptcy Court, Southern District of New York (Manhattan).

To contact the reporter on this story: David McLaughlin in New York atdmclaughlin9@bloomberg.net

To contact the editor responsible for this story: John Pickering at jpickering@bloomberg.net