3.25 Billion in Loans for AMR OK'd to Fuel Bankruptcy Exit

NEW YORK--AMR Corp. (AAMRQ) on Thursday received a judge's approval of up to $3.25 billion in new financing secured by its Latin American assets, money the American Airlines parent plans to use to exit its Chapter 11 bankruptcy and complete its merger with US Airways Corp. (LCC).

Judge Sean H. Lane of U.S. Bankruptcy Court in Manhattan said AMR could access up to $1 billion in revolving credit and $2.25 billion in a term loan.

Skadden Arps Slate Meagher & Flom LLP's Jack Butler, a lawyer for AMR's official committee of unsecured creditors, praised the financing, even though he said AMR didn't "need" it to get out of bankruptcy.

"This is purely a strategic financing to take advantage of favorable capital markets," said Weil, Gotshal & Manges LLP's Stephen Karotkin, a lawyer for AMR.

Judge Lane said AMR could file the paperwork containing the interest rate on the revolving loan--known by the lawyers involved--confidentially.

Currently, AMR has nine banks signed on to provide $900 million in the revolving financing, although it hasn't yet finalized who the lenders will be for the term financing. That term loan will initially stand at $1.5 billion, but AMR lawyers said they could increase that amount to $2.25 billion in the future. The revolving financing won't be available to AMR until it's out of bankruptcy, the company said.

The $3.25 billion would be secured by its right to operate direct flights between the U.S. and South America and its airport slots in those countries.

U.S. airlines have previously used international route rights and valuable slots and gates at congested airports as loan collateral, but American's move comes ahead of the full liberalization of flights between the U.S. and Brazil, the region's most important market.

The U.S.-Brazil market will be fully opened in October 2015, allowing airlines from either country to operate routes of their choosing, and they may also price those routes as they choose.

One remaining restriction, however, will be access to Sao Paulo's Guarulhos International Airport. While the airport is included in the open skies deal for 2015, severe congestion makes takeoff and landing slots and access to gates held by existing operators a prized commodity.

Also on Thursday, the Justice Department's federal bankruptcy watchdog argued about $15 million in retention fees financial advisory firms Rothschild Inc. and Moelis & Co. proposed to split for their efforts evaluating the financing deal.

A lawyer for U.S. Trustee Tracy Hope Davis argued that those fees should have been reported on the firms' earlier fee applications in the case. The firms argued that the fees being charged are for new work being done, not work covered under the original applications. Lane said he'd rule later on the matter. Lawyers said Moelis and Rothschild would give up their fees if the financing somehow falls through.

Judge Lane in March approved the historic merger between US Airways and AMR, 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.

--Jacqueline Palank contributed to this article.

(Dow Jones Daily Bankruptcy Review covers news about distressed companies and those under bankruptcy protection. Go to http://dbr.dowjones.com)

Write to Joseph Checkler at [e-mail]. Follow him on Twitter at @JoeCheckler

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