The bankruptcy court has thrown out US Bank objections and approved American Airlines' planned issue of up to $1.5 billion secured enhanced equipment trust certificates (EETC).
"The court agrees with the debtors [American] that the prepetition financing transactions by their terms do not require payment of the make-whole amount where, as here, the obligations have been accelerated by virtue of the debtors' filing for bankruptcy," says US Bankruptcy Court for the Southern District of New York judge Sean Lane in a ruling on 17 January.
US Bank had claimed that the Fort Worth-based airline must pay a make-whole premium on about $174.2 million in outstanding principle, for which the lender is trustee and security agent, because it was seeking to voluntarily repay the debt under the proposed refinancing.
Lane says that American's filing for bankruptcy constitutes a default event under the loan agreement between the airline and US Bank, and notes that in such an event the debtor is not required to pay the make-whole amount, in the ruling.
"We are pleased with Judge Lane's decision and that he agreed with our position," says American.
The carrier plans to use the proceeds of the debt to repay $1.32 billion in outstanding debt, which carries interest rates between 8.625% and 13%. It hopes to secure significantly lower rates with the two- to nine-year issue.
Senior EETC debt issued by US airlines achieved coupons of between 4% and 4.75% in 2012, except for the US Airways 2012-1 senior tranche that carries a 5.9% interest rate.
American's EETCs would be backed by 41 Boeing 737-800s, 15 757-200s, one 767-300ER and 19 777-200ERs in its fleet.
Deutsche Bank Securities and Morgan Stanley are underwriting the issue. Wilmington Trustee is trustee.