AA debt holders lash out at Horton
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American Airlines Debt Holders Lash Out at CEO
By MIKE SPECTOR WSJ
Two hedge funds holding American Airlines debt lashed out at Chief Executive Tom Horton, saying the airline company is excluding them from discussions on how it should emerge from bankruptcy proceedings while engaging in "inappropriate" talks with another group of bondholders, according to people familiar with the matter.
In a letter to Mr. Horton Thursday, representatives of Appaloosa Management LP and Marathon Asset Management said they together hold more than $800 million of the airline's debt and that bankruptcy proceedings for American Airlines parent AMR Corp. "have not been sufficiently transparent" or "inclusive" to some nonunion creditors who could own significant shares of the company after it reorganizes, said people familiar with the letter.
The funds' main gripes concern discussions AMR and its advisers are having with another group of bondholders, called an "ad hoc" group, about that group providing financing for the company as well as about AMR's plans for emerging from bankruptcy.
AMR is considering emerging as a standalone company while it also is engaged in discussions about a potential merger with rival US Airways Group Inc.
In their letter, Appaloosa and Marathon said Mr. Horton and others associated with American have discussed financing with the ad hoc group that would support the company emerging from bankruptcy as an independent airline "apparently regardless of whether additional equity financing is advisable or whether a merger or other alternative would provide more value to [American's] stakeholders." They described the talks as "plan discussions," referring to a plan to emerge from Chapter 11.
Appaloosa is a significant holder of US Airways shares, although a person familiar with the matter has said its financial position in AMR is larger than in US Airways. Representatives for Appaloosa and Marathon and the ad hoc bondholders group weren't immediately reached for comment Friday. An American spokeswoman had no immediate comment.
The letter underscores the wide array of creditors American is under pressure to appease to emerge from bankruptcy protection and shows how some of them can flex their muscles during Chapter 11 proceedings. Investors holding large chunks of the airline's debt can litigate to frustrate the company's path out of Chapter 11 if they don't back its plan. American needs a critical mass of creditors to vote in favor of any path it pursues out of bankruptcy for a judge to approve it.
American filed for bankruptcy protection last November. Appaloosa was invited by American to join the ad hoc bondholder group earlier this year, despite some reservations about the funds' US Airways interests, said people familiar with the matter. Marathon was once part of the ad hoc group, but later dropped out for reasons that are unclear, some of these people said.
The ad hoc group and its advisers decide who can be members of the group, but American plays a role in deciding which creditors and groups it will negotiate with and considers both Appaloosa and Marathon to have an "open invitation" to join in on discussions, said people familiar with the airline's thinking.
American has been in touch with Marathon on other issues, one of the people said. American has also stayed in regular touch with an official unsecured creditors committee and another informal group of creditors, another person said.
The ad hoc group of bondholders—including Pentwater Capital Management LP, Litespeed Management LLC and J.P. Morgan Securities, among others—have met with American executives and advisers frequently over the past several months.
The group has offered to provide between $1 billion and $2 billion to finance American's exit from bankruptcy as an independent airline, according to people close to the discussions. They have been eager to negotiate the details of a standalone reorganization plan but haven't discussed significant details of such a plan yet, according to people close to the deliberations.
These bondholders are also open to a merger with US Airways but are determined not to be pressured into a deal, according to people familiar with their thinking. Their advisers have met with US Airways advisers, according to people familiar with the matter.
In their letter to American's Mr. Horton, Appaloosa and Marathon said they weren't working together but wanted to express "shared concerns." They described American's discussions with the other bondholders as "allowing a limited group of creditors to influence the [company's] restructuring process" without conferring with a broader group of creditors.
Appaloosa is also allied with Goldman Sachs Group Inc., which holds American debt and is copied on the letter, according to people familiar with the matter. A Goldman spokesman had no immediate comment.
Appaloosa and Marathon also expressed concerns about discussions between American and the ad hoc group about financing that would help the airline exit bankruptcy. "From what we understand," the funds wrote, the two sides are discussing "backstopping a discounted rights offering."
With a rights offering in bankruptcy, creditors would buy shares of a reorganized American at a discount, in the hopes the stock rises when the firm exits Chapter 11. They also would agree to buy shares others don't, guaranteeing the company gets desired funds. Such a deal could give the creditors involved significant ownership stakes in American and the power to appoint directors to the reorganized company's board.
The hedge funds also suggested American is intent on exiting bankruptcy as an independent airline with financing from certain creditors instead of taking merger discussions with US Airways seriously, an implication American has dismissed on prior occasions.
A reorganization plan best for all creditors "can only be achieved through a transparent process that engages all major stakeholders, not just the parties that have agreed to support an alternative that may be preferred by the [company's] present management," the funds wrote.
The exchange isn't the only one between American and the two funds. Earlier in the case, Appaloosa asked American for access to certain information, requests that were rebuffed, according to letters from American's lawyer to Appaloosa's lawyer reviewed by The Wall Street Journal. American's bankruptcy lawyer suggested Appaloosa join the official unsecured creditors committee or the ad hoc group and provide more information about its investments.
Marathon, meanwhile, earlier challenged American's handling of the valuation of its claims against the airline. The hedge fund asked a judge in August to establish a process to put a value on its claims against the airline; the request was denied in September.
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#2
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And I thought AMR and US Airways would be deep in details over a deal by now. This sounds like Horton and his team are going to do everything they can to go it alone and collect their bonuses. I could only imagine the lawsuits that will follow if they are successful.
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And I thought AMR and US Airways would be deep in details over a deal by now. This sounds like Horton and his team are going to do everything they can to go it alone and collect their bonuses. I could only imagine the lawsuits that will follow if they are successful.
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That is funny!
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