Bloomberg News

AMR Unsecured Creditors May Recoup ‘Next to Nothing,’ Fitch Says

November 30, 2011

Nov. 29 (Bloomberg) -- Investors in AMR Corp.’s unsecured debt may recover “next to nothing” as the parent of American Airlines restructures in bankruptcy court, according to Fitch Ratings.

AMR’s $75.5 million of 9 percent senior unsecured notes due in August 2012 were trading at 15.5 cents on the dollar at 10:45 a.m. in New York, according to Trace, the bond price reporting system of the Financial Industry Regulatory Authority. The debt has plunged from this year’s high of 93.5 cents on Sept. 14. Holders of the Fort Worth, Texas-based company’s unsecured obligations will likely recover 10 percent or less of face value, Bill Warlick, an analyst at Fitch, wrote today in a note to clients.

American became the final large U.S. full-fare airline to seek court protection from creditors. The company, which traces its roots to 1920s air-mail operations in the Midwest, listed $24.7 billion in assets and $29.6 billion in debt in Chapter 11 papers filed today in U.S. Bankruptcy Court in Manhattan.

“In a reorganization scenario, the recovery on the secured debt will be quite strong, but the remaining obligations aren’t going to do very well,” Warlick said in a telephone interview. “It’s likely they’ll recover next to nothing,” he said of investors in AMR’s unsecured debt.

AMR bonds sold two months ago declined after the parent of American Airlines filed for bankruptcy, and credit-default swap dealers started the process to trigger payouts on derivatives tied to its debt.

First-Lien Debt

The company’s $725.7 million of 8.625 percent notes due in October 2021 fell 2.25 cents to 96.25 cents on the dollar, Trace data show. The first-lien pass through certificates, which are backed by airplanes, were issued at face value on Sept. 27. The company’s $450 million of 10.5 percent secured notes due October 2012 decreased 3 cents to 90 cents, Trace data show.

Holders of secured debt including AMR’s $1 billion of five- year, 7.5 percent notes sold on March 9 may recover more than 90 percent of par value, Warlick wrote in the note. Those securities, which are backed by routes between the U.S., U.K., Japan and China, traded today at 76.5 cents on the dollar, according to Bloomberg Valuation data.

AMR Swaps

Credit-default swaps on AMR that pay out after a default or bankruptcy traded today at 83 percent upfront, according to broker Phoenix Partners Group in New York. That means it would cost $8.3 million to protect $10 million of the company’s debt. The swaps pay the buyer of the contracts face value, minus the recovery value of the bonds that are set by dealers and investors in an auction of the securities. The swaps were quoted at 70 percent upfront yesterday.

Investors bought or sold $363.8 million of protection on AMR through so-called single-name contracts that bet on individual companies. AMR was also one of 100 companies in older versions of the Markit CDX North America High Yield Index, on which investors bought or sold a net $63.2 billion of protection using credit-default swaps.

The International Swaps and Derivatives Association’s determinations committee said today it will consider a request from UBS AG to resolve whether a credit event has occurred. A vote will be held among the 15-member committee of dealers and investment firms to decide if there will be a payout.

--Editors: Mitchell Martin, Alan Goldstein

To contact the reporters on this story: Tim Catts in New York at tcatts1@bloomberg.net; Shannon D. Harrington in New York at sharrington6@bloomberg.net.

To contact the editor responsible for this story: Alan Goldstein at agoldstein5@bloomberg.net.


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