Bloomberg News

AMR Debtholders to Push American, US Airways on Plans

May 21, 2012

AMR Corp. (AAMRQ:US) debt holders are organizing outside its unsecured creditors committee to determine whether the bankrupt company or potential suitor US Airways Group Inc. (LCC:US) can offer the best return, people familiar with the matter said.

Two bondholder (AAMRQ:US) groups hired financial and legal advisers, said the people, who asked not to be identified because the talks are private. The first goal is to assess AMR’s plan for a stand-alone American Airlines, possibly by month’s end, then meet with US Airways on its takeover bid, the people said.

Forming ad hoc groups gives more leverage to investors who aren’t on the creditors panel set up by the U.S. Bankruptcy Court. Those blocs would be able to deliver support to either US Airways or Fort Worth, Texas-based AMR. In 2007, an ad hoc group of Delta Air Lines Inc. (DAL:US) bondholders pressed that carrier to review a hostile US Airways bid that later failed.

One ad hoc group in the AMR case includes corporate-debt holders such as hedge fund Appaloosa Management LP, and has hired law firm White & Case LLP and financial adviser Houlihan Lokey, the people said. The other includes OppenheimerFunds Inc., the largest holder of AMR’s municipal debt, and has retained law firm Kramer Levin Naftalis & Frankel LLP and financial adviser Seabury Group LLC, the people said.

Appaloosa and OppenheimerFunds declined to comment, as did US Airways and Houlihan Lokey. Kramer Levin, White & Case and Seabury didn’t immediately respond to calls seeking comment.

Studying Scenarios

AMR declined to comment beyond referring to a May 11 statement in which Chief Restructuring Officer Beverly Goulet said the airline agreed to work with the creditors committee to develop “potential consolidation scenarios” without committing to pursue any transaction. AMR filed for bankruptcy on Nov. 29.

AMR’s $460 million of 6.25 percent convertible notes due October 2014 rose 3.3 percent to 50.5 cents on the dollar at 2:48 p.m. in New York, according to Trace, the bond-price reporting system of the Financial Industry Regulatory Authority. US Airways shares climbed 6.5 percent, the most in a month, to $10.71 at the close.

While AMR holds the sole right to propose a reorganization plan through Sept. 28, the official creditors committee can ask Bankruptcy Judge Sean Lane to end that privilege early. Tempe, Arizona-based US Airways, which has won support for a merger from American’s largest unions, hasn’t made a takeover offer.

Stand-Alone Emphasis

The May 11 accord with AMR’s nine-member creditor panel in which the company agreed to study strategic options was a departure from Chief Executive Officer Tom Horton’s desire to consider a tie-up only after American exits Chapter 11 as an independent airline.

White & Case and Houlihan Lokey, the advisers to the ad hoc corporate-debt owners, have held informal talks with AMR and expect to have more serious meetings and begin due diligence this week, one person said. The AMR meetings will occur before the group sits down with US Airways, the person said.

That debt-holder group, which also includes hedge funds such as York Capital Management LLC and King Street Capital Management LP, is still trying to line up more members, said one of the people. York Capital and King Street Capital didn’t return telephone messages left for comment last week.

US Airways’ pitch to bondholders has been the promise of a greater return than AMR could provide with its plan for a stand- alone American. US Airways has said the benefits would flow from its labor accords with American’s three biggest unions, flexibility with plane leases, and a projected $1.2 billion in annual savings and new revenue in a merger.

A combination of American, the third-biggest U.S. carrier, and No. 5 US Airways would surpass United Continental Holdings Inc. (UAL:US) as the world’s largest airline based on passenger traffic.

For White & Case and Houlihan Lokey, the case reprises their advisory roles this year for an investor group that included Appaloosa, which is run by David Allan Tepper. They represented bondholders in the bankruptcy filing of Residential Capital LLC, in which debt investors were paid off at par.

To contact the reporters on this story: Jeffrey McCracken in New York at jmccracken3@bloomberg.net; Mary Schlangenstein in Dallas at maryc.s@bloomberg.net

To contact the editors responsible for this story: Ed Dufner at edufner@bloomberg.net; Jennifer Sondag at jsondag@bloomberg.net


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