A group of AMR Corp. (AAMRQ) bondholders with about $885 million in debt has told pilots that its support for a stand-alone American Airlines after bankruptcy would be conditioned on the appointment of a new board.
The debt owners detailed that stance in a letter to Allied Pilots Association President Keith Wilson that was posted on a portion of the union website yesterday. According to a September court filing, the group included JPMorgan Chase & Co. (JPM) and Pentwater Capital Management LP.
While the ad hoc bondholders don’t hold a seat on AMR’s unsecured creditors committee, the group has come together to seek an official voice in the restructuring. Fort Worth, Texas- based AMR has said it prefers to leave bankruptcy as an independent company, while US Airways Group Inc. (LCC) has been pushing for a merger with the third-largest U.S. airline.
“The implied message here -- and I don’t think it’s very subtle -- is we’re getting rid of everybody who brought us to this day,” Vicki Bryan, a senior bond analyst with Gimme Credit LLC, said in an interview. “We’re clearing the deck and we will put in place people in favor of a more promising future, and that means the merger as soon as possible.”
The bondholder group intends “to be one of the primary negotiators of any plan of reorganization” because of its position as a material stakeholder in AMR, Gerard Uzzi of law firm Milbank, Tweed, Hadley & McCloy LLP wrote in the letter, which was dated Nov. 15.
AMR said in August that the ad hoc group was interested in providing financing for a restructuring, and the company won bankruptcy court approval in September to move forward on talks with the ad hoc bondholders. American will pay for the 12-member group’s advisers.
“Our support for a stand-alone plan of reorganization for AMR will be conditioned, among other things, on that plan providing for the naming of a new board of directors,” Uzzi wrote in the letter for the bondholders group.
Messages left for Uzzi by phone and e-mail about the group’s current membership weren’t immediately returned. Mike Trevino, an American spokesman, declined to comment on the bondholders’ letter.
AMR’s $460 million of 6.25 percent convertible notes due October 2014 rose 6 percent to 75.25 cents on the dollar at 5:42 p.m. yesterday in New York, according to Trace, the bond-price reporting system of the Financial Industry Regulatory Authority. The notes traded at 17.75 cents after AMR’s bankruptcy filing.
Labor-management relations have long been strained at American, where five years of union talks starting in 2006 failed to help bring the savings that AMR said it needed to avert a bankruptcy filing. American’s unions have backed a merger with US Airways, the fifth-biggest U.S. carrier.
The bondholders expect a new AMR board to consist “of mostly individuals without prior affiliation with the company,” Uzzi wrote.
The group’s reference only to a stand-alone reorganization plan shouldn’t be viewed as a sign of support for that option or a merger, the Allied Pilots Association told members. A merger would force a change in AMR’s board.
“This letter provides APA with the benefit of a written commitment by the ad hoc group stating it will not agree to a plan of reorganization that does not otherwise include a new independent AMR board of directors and that key stakeholders, including labor, will be a part of that selection process,” the union told its members.
American pilots are voting on a tentative labor agreement with the carrier that would give them a 13.5 percent stake in the restructured company. The union holds a seat on AMR’s creditors committee, which has a say in major decisions made during the bankruptcy.
“Selecting the right leadership, board of directors and strategic plan for this company is of critical importance to our pilots, and we now have a commitment from that creditor group to help us pursue that end goal,” Dennis Tajer, an APA spokesman, said in an interview.
American filed for bankruptcy protection one year ago tomorrow. The case is In re AMR Corp., 11-15463, U.S. Bankruptcy Court, Southern District of New York (Manhattan).
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