AMR Bondholder Group Said to Favor Merger With US Airways

A group of AMR Corp. (AAMRQ) bondholders with about $1.5 billion in unsecured debt is backing a merger in bankruptcy with US Airways Group Inc. (LCC) and pushing for a deal by Feb. 15, people familiar with the matter said.

The bondholders coalesced behind the idea after reviewing confidential data from AMR’s American Airlines and US Airways, said the people, who asked not to be identified because the talks are private. The promise of more cost savings and other financial benefits from a combined carrier than a stand-alone American helped sway the group, one of the people said.

While the ad hoc group doesn’t hold a seat on AMR’s unsecured creditors committee, the debt holders’ support gives US Airways an ally as it makes the case for a tie-up that would create the world’s largest airline. AMR said Jan. 3 it expected to decide in weeks to merge or stay independent.

Feb. 15 is the expiration date of non-disclosure agreements the bondholders signed with the two airlines, one of the people said. Besides giving the debt owners access to proprietary information, the accords restrict them from trading in AMR or US Airways debt, two people said.

Gerard Uzzi, an attorney at Milbank, Tweed, Hadley & McCloy LLP in New York who represents the bondholders, declined to comment when asked about the ad hoc group’s support of a merger. An AMR spokesman, Michael Trevino, also declined to comment, as did John McDonald, a US Airways spokesman.

Photographer: Andrew Harrer/Bloomberg

AMR Corp. has urged that creditors get 80 percent of the equity versus 20 percent for US Airways Group Inc. shareholders, while US Airways favors a 70 percent to 30 percent division, a person said. Close

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Photographer: Andrew Harrer/Bloomberg

AMR Corp. has urged that creditors get 80 percent of the equity versus 20 percent for US Airways Group Inc. shareholders, while US Airways favors a 70 percent to 30 percent division, a person said.

Bondholder Group

Members of the ad hoc group include MatlinPatterson Capital Management LP, JPMorgan Chase & Co., Cyrus Capital Partners LP, Pentwater Capital Management LP and Marathon Asset Management LP, according to a Dec. 13 court filing.

Based on that filing, the group’s holdings included more than $880 million of unsecured AMR notes and more than $620 million in unsecured trade claims, according to Kevin Starke, an analyst at CRT Capital Group LLC in Stamford, Connecticut.

The division of equity in a combined airline and who would run it remain unresolved in talks among the carriers and AMR creditors, the people said. The bondholders want the ownership of a combined airline to be settled first, with a decision to follow on management, one person said.

AMR has urged that creditors get 80 percent of the equity versus 20 percent for US Airways shareholders, while US Airways favors a 70 percent to 30 percent division, another person said. American is the third-biggest U.S. airline, while US Airways is No. 5.

Parker, Horton

US Airways Chief Executive Officer Doug Parker has pushed for a merger since January 2012. AMR CEO Tom Horton agreed to consider merger options in restructuring after saying the airline preferred to exit court protection and then weigh consolidation.

Speculation that Parker would succeed has more than tripled US Airways shares since the day before AMR’s Chapter 11 filing on Nov. 28, 2011, topping the 26 percent gain for the Standard & Poor’s 500 Index. The stock fell 4.1 percent to $14.42 at the close in New York as rising crude prices weighed on U.S. airline shares.

AMR’s $460 million of 6.25 percent convertible notes due in October 2014 have soared more than fivefold during its time in bankruptcy. They rose 0.4 percent to 94.875 cents on the dollar at 10:10 a.m. in New York, according to Trace, the bond-price reporting system of the Financial Industry Regulatory Authority.

The ad hoc group began organizing in May to gain more leverage in AMR’s bankruptcy, and later secured access to proprietary information as each of the carriers sought support.

The bondholders, some of which also own secured AMR debt, told American pilots in November that their support for a stand- alone carrier after bankruptcy would be conditioned on the appointment of a new board. In August, the group said it was interested in providing financing for an AMR restructuring.

US Airways has said combining the airlines could produce at least $1.2 billion a year in savings and incremental revenue. A merged carrier would surpass the top two by global traffic, United Continental Holdings Inc. (UAL) and Delta Air Lines Inc. (DAL)

The case is in re AMR Corp., 11-15463, U.S. Bankruptcy Court, Southern District of New York (Manhattan).

To contact the reporters on this story: Mary Schlangenstein in Dallas at maryc.s@bloomberg.net; Jeffrey McCracken in New York at jmccracken3@bloomberg.net; Beth Jinks in New York at bjinks1@bloomberg.net

To contact the editors responsible for this story: Ed Dufner at edufner@bloomberg.net; Jeffrey McCracken at jmccracken3@bloomberg.net

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