Business Context and Reporting Period
This Form 8-K Current Report was filed by AMR Corporation on July 7, 2009. The filing details a significant capital transaction executed by its wholly-owned subsidiary, American Airlines, Inc. The report focuses on the creation of a direct financial obligation through the issuance of equipment notes secured by aircraft assets.
Key Financial Metrics and Transaction Details
- Total Financing Capacity: The transaction establishes a total principal amount of $520,110,000 for the Series A Equipment Notes.
- Immediate Funding: $153,678,000 in notes were issued on July 7, 2009, secured by four Boeing 777-223ER aircraft delivered between 1999 and 2000.
- Future Funding: $366,432,000 in notes are reserved for future issuance, secured by 16 new Boeing 737-823 aircraft scheduled for delivery between July 2009 and October 2010.
- Interest Rate: The Series A Equipment Notes bear interest at 10.375% per annum.
- Liquidity and Escrow: Proceeds of $366,432,000 from the sale of Class A Certificates were placed in escrow pending the purchase of the new aircraft notes.
- Maturity: Final payments are due on July 2, 2019, with semiannual interest payments beginning January 2, 2010.
Material Changes and Structure
The filing represents a material increase in debt obligations secured by specific aircraft assets. The transaction utilizes a pass-through trust structure where the Trustee purchases the equipment notes using proceeds from the sale of Pass Through Certificates (Class A Certificates). The notes are secured by a lien on the specific aircraft and are cross-collateralized by other aircraft financed under the offering. This structure allows for the immediate financing of owned aircraft and the pre-arranged financing of future aircraft deliveries.
Outlook, Risks, and Contingencies
- Acceleration Risks: Maturity of the notes may be accelerated upon events of default, including failure to make payments, non-compliance with covenants, or bankruptcy events involving American Airlines.
- Execution Risk: The full $520,110,000 principal amount is contingent upon the delivery and financing of 16 new Boeing 737-823 aircraft from a pool of 59 scheduled for delivery through October 2010.
- Underwriting: The Class A Certificates were sold pursuant to an underwriting agreement with Goldman, Sachs & Co. and Morgan Stanley & Co. Incorporated.
Investor Verification Checklist
- Verify the delivery schedule and acceptance of the 16 new Boeing 737-823 aircraft required to trigger the remaining $366,432,000 in financing.
- Review the specific covenants and events of default in the Indentures that could trigger acceleration of the $520,110,000 debt.
- Confirm the status of the escrowed funds held by The Bank of New York Mellon and the conditions for their release.
- Assess the impact of the 10.375% interest rate on the company's future cash flow requirements starting January 2010.