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AMR Seeks to Buy Back Bonds Ahead of US Airways Merger

05/24/2013 | 01:08pm US/Eastern
   By Joseph Checkler 

AMR Corp. (>> AMR Corporation) is seeking court approval to buy back more than $1.2 billion in debt from noteholders, as the American Airlines parent continues to march toward finalizing its merger with US Airways Group Inc. (>> US Airways Group Inc).

In a Thursday filing with U.S. Bankruptcy Court in Manhattan, AMR said it wants to buy back three sets of notes secured by its aircraft, issued before the company entered Chapter 11 in late 2011. The company has been putting off repaying the notes for months because of litigation over them but now says it doesn't want to wait for the litigation to play out.

"Each month, the Debtors are accruing approximately $6 million of interest expense under the Notes in excess of prevailing interest rates," AMR said in its filing. AMR has been fighting in appeals court with U.S. Bancorp (>> U.S. Bancorp), the trustee for the notes, which has argued that AMR must make a lump-sum payment to satisfy the notes. AMR said that because that litigation could take too much time, it wants to launch a tender offer for the notes that would pay holders the full value of the notes plus more, as an incentive to sell them. If holders of more than half of any of the notes agree to tender their notes, those sellers will receive even more.

"The Offers, if successful, will reduce the ongoing interest costs associated with further delay in consummating the repayment of the Notes and will mitigate risks associated with repaying the Notes without a ruling," AMR said in its filing.

A hearing on the request is set for June 13.

The measure is just another of the many AMR has made since Judge Sean H. Lane's March approval of a merger with US Airways, which would create the world's largest airline. The combined company is expected to have a market value of around $11 billion. It would pay AMR's bondholders back in full and even give the company's existing equity holders 3.5% of the combined airline, and possibly more.

AMR filed for Chapter 11 in November 2011 and has used its time in bankruptcy to cut costs related to both its operations and labor. Those labor cuts involved deep concessions from the unions representing its pilots, flight attendants and mechanics, but those groups will get better terms under the merger. The combined company will be called American Airlines Group Inc.

(Dow Jones Daily Bankruptcy Review covers news about distressed companies and those under bankruptcy protection. Go to

Write to Joseph Checkler at

Stocks mentioned in the article : AMR Corporation, US Airways Group Inc, U.S. Bancorp
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