September 20, 2012 / 6:28 PM / 6 years ago

AMR gets OK to pay fees for bondholders mulling financing

NEW YORK (Reuters) - AMR Corp AAMRQ.PK won court approval Thursday to pay the professional fees for bondholders considering a potential equity infusion that could allow the bankrupt airline to emerge as a standalone company.

The bondholders group, which holds roughly $900 million in various bond offerings, wants to perform due diligence to explore a financing offering, AMR attorney Harvey Miller said at a hearing in Manhattan bankruptcy court.

Bankruptcy laws allow companies to pay the fees of creditors who may play a significant role in the company’s restructuring. The 12-member bondholder group includes Pentwater Capital Management, Litespeed Management, Claren Road Asset Management and a JPMorgan unit, according to court filings.

AMR declared bankruptcy last November, citing high labor costs. It has said it needs to save more than $1 billion a year in labor expenses, and earlier this week warned more than 11,000 workers of potential layoffs.

Its smaller competitor, US Airways Group LCC.N, has been making an aggressive push to acquire the company, but AMR has said it would prefer to emerge from bankruptcy on its own, then consider a merger.

The fee agreement does not mean the bondholder group will ultimately provide funding on a standalone plan, or that other parties cannot explore providing an equity infusion, said Jack Butler, an attorney for AMR’s creditors’ committee.

“There are other large holders in the case that have ... similar interests, and the dialogue will go on with others,” Butler said.

Judge Sean Lane approved the motion at Thursday’s hearing. He denied a similar motion from a committee of AMR retirees who also wanted AMR to pay its lawyer fees.

The bondholder group is represented by law firm Milbank Tweed Hadley & McCloy and financial adviser Houlihan Lokey.


Separately, Judge Lane called for a hearing to determine whether 143 AMR planes are losing too much value to cover $450 million in bonds for which they serve as collateral.

The agent for the bonds, U.S. Bank (USB.N), had previously argued the planes were hemorrhaging value as AMR deferred periodic repairs and maintenance checks.

The bondholders are separate from the group in talks on a potential equity infusion.

AMR attorney Stephen Karotkin rebutted U.S. Bank’s argument as “sensationalizing,” saying the deferred maintenance covers minor issues such as seat repairs and doesn’t affect the safety or value of planes.

Under AMR’s appraisal, the planes are worth nearly double what the bondholders are owed. But under an appraisal done by advisers to U.S. Bank, a sale of the planes would net only about $461 million, according to the bank’s court papers.

James Spiotto, an attorney for U.S. Bank, said on Thursday that the planes’ value, plus an additional $40 million in cash collateral, would give U.S. Bank about $501 million in total collateral - barely higher than the $491 million it claims to be owed in principal and interest.

Judge Lane said he needed to hear from witnesses to compare the parties’ different valuation accounts. The sides did not pick a date for the hearing, but were aiming for October. The bonds are due on October 15.

Sean Collins, a spokesman for AMR, declined to comment, but said the company stands by its statement on Wednesday that “the aircraft are being maintained in compliance with all applicable FAA regulations.”

Judge Lane denied a similar motion from U.S. Bank in February, but U.S. Bank said circumstances have changed due to the alleged value drop.

The case is In re AMR Corp et al, U.S. Bankruptcy Court, Southern District of New York, No. 11-15463.

Reporting by Nick Brown; Editing by Gary Hill

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