Appaloosa Management LP and Marathon Asset Management LP said American Airlines (AAMRQ) isn’t being “sufficiently transparent” as the carrier holds talks with a creditor group about its bankruptcy restructuring.
AMR Corp., American’s parent, is providing confidential information to the group and negotiating with it about a reorganization “to the exclusion of” nonunion unsecured creditors, the hedge funds said in an Oct. 18 letter to AMR Chief Executive Officer Tom Horton.
“Allowing a limited group of creditors to influence the debtors’ restructuring process without input from a broader representation of creditors is not only inappropriate, but also risks the loss of value of the debtors’ estates for all of their constituents as a whole,” Appaloosa and Marathon said in the letter, a copy of which was obtained by Bloomberg News.
American, which filed for bankruptcy in Manhattan last year, is negotiating with a creditor group that the company says may provide financing for its reorganization. The Fort Worth, Texas-based carrier won permission last month from a federal bankruptcy judge to pay the fees of the group’s advisers as talks proceed. The group includes JPMorgan Chase & Co. (JPM), Claren Road Asset Management and Pentwater Capital Management, according to court papers.
Gerard Uzzi, an attorney for the group, didn’t respond to an e-mail seeking comment on the Oct. 18 letter, which was earlier reported by the Wall Street Journal.
“Our objective thorough strategic review of all alternatives is appropriately focused solely on creating maximum value for all stakeholders,” AMR spokesman Michael Trevino said in an e-mailed statement.
Appaloosa and Marathon said the creditor group’s unsecured debt holdings in the bankruptcy case don’t constitute “the critical mass” needed to move the restructuring in a “positive direction.”
The hedge funds said that based on their understanding, talks between the creditor group and American have focused on a discounted rights offering that some group members would like to backstop “apparently regardless of whether additional equity financing is advisable or whether a merger or other alternative would provide more value.”
American has agreed to share financial information with US Airways Group Inc. (LCC), the Tempe, Arizona-based carrier that backs a merger of the two airlines. American is scheduled to ask U.S. Bankruptcy Judge Sean Lane at an Oct. 30 court hearing to extend to Jan. 28 its exclusive right to file a plan. American said it needs more time as it considers strategic alternatives.
The structure of AMR’s reorganization “can only be achieved through a transparent process that engages all major stakeholders, not just parties that have agreed to support an alternative that may be preferred by” the company’s management, Appaloosa and Marathon said.
The case is In re AMR Corp., 11-15463, U.S. Bankruptcy Court, Southern District of New York (Manhattan).