American reorganisation plan could threaten Embraer refinancing

Washington DC
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The Brazilian development bank BNDES has concerns that debt for 177 Embraer regional jets could be terminated under American Airlines' reorganisation plan, court documents show.

The plan could be considered a "non-conforming plan" under the amended master term sheet between the lender and the Fort Worth-based carrier that was approved by the court last year, according to a filing by BNDES' financing arm FINAME with the US Bankruptcy Court for the Southern District of New York on 2 August.

BNDES claims that the term sheet could be terminated under a non-conforming plan and result in a snap-back claim where American would have to repay $126.8 million in outstanding debt and return the 59 ERJ-140 and 118 ERJ-145 aircraft, the filing states.

The aircraft make up the majority of the American Eagle Airlines fleet.

The amended term sheet reduced the outstanding $1.75 billion in debt against 216 regional jets by 38% to $1.08 billion. As part of the deal, Embraer agreed to take 18 ERJ-135s in American Eagle's fleet immediately and the remaining 21 of the type by the end of this year.

Financing terms were amended on 59 ERJ-140s and 68 ERJ-145s, while they remained unchanged on 50 ERJ-145s.

"[While] the parties seem to have agreed on how to resolve the issues, it remains to be seen whether all of the financing parties' concerns will be satisfactorily addressed in any further amended version of the plan," says BNDES.

Final financing terms for the 177 ERJ-140/145 aircraft must be agreed on or after the date that the reorganisation plan is confirmed by the court, according to the filing.

The bankruptcy court will hold a hearing on the reorganisation plan in New York on 15 August. Approval is key to American's planned merger with US Airways, which the court has previously approved.

American declines to comment.