AMR creditors' committee may be an eclectic mix

By @ibtimes on

Labor unions, suppliers and other groups with potential claims against bankrupt AMR Corp will gather on Monday to vie for a seat on what could be an eclectic committee of creditors.

The office of the U.S. Trustee, which oversees bankruptcy cases, is expected to appoint the committee at a meeting on Monday at the Sheraton Hotel in Manhattan.

Creditors' committees, common in most corporate bankruptcies, advocate for the collective rights of unsecured creditors - those whose claims are not secured by collateral.

But for AMR, the American Airlines parent whose pension plans are about $10.2 billion in the red, those creditors' interests may not always be aligned.

The nature of the airline business leads to a more diverse group of creditors than your standard bankruptcy because you have labor, municipalities and so on, said Bill Brandt, chief executive of turnaround consultant Development Specialists Inc.

AMR, whose American Airlines subsidiary is the third-largest U.S. carrier, filed for bankruptcy on Tuesday, listing nearly $30 billion in liabilities. The last of the major U.S. carriers to go bankrupt, the company cited a need to improve its cost structure after talks with labor unions hit a standstill.

The labor interest will likely be well-represented on the committee, as the Pension Benefit Guaranty Corp, the government agency that insures pension plans, has already said it will seek a spot. Unions like the Allied Pilots Association, which represents all American Airlines' pilots, are also likely to earn seats.

Food, fuel and other suppliers are sure to be in the mix as well, Brandt said, as are cities whose airports are hubs for AMR. Many of those cities, which include Miami, Chicago on Los Angeles, issued special revenue bonds on the company's behalf to fund improvement projects, Brandt explained.

The interests of committee members may clash, especially if the committee includes more traditional financial creditors, like Wilmington Trust Co, holder of $460 million in senior notes.

That is a problem the trustee could address by appointing more than one committee, such as committee specifically for labor interests, said Kelli Alces, a professor at Florida State University College of Law.

But a single committee may be the best way for unsecured creditors to resolve their differences, Alces said.

It would also be cheaper. Monday's meeting is sure to be flooded with lawyers and financial advisors looking to represent creditors' committees, and more committees means more fees, said Harlan Platt, a bankruptcy expert and business professor at Northeastern University.

Besides, Platt said, unsecured creditors are more united than divided, as they all face a potentially meager recovery.

Bankruptcy rules allow AMR to seek to reject union contracts altogether, kicking their claims into the general unsecured pool. Since each claimant in that pool gets a pro-rata share of what is left after other creditors are paid, more claimants means less payback for all.

The real fight for unsecured creditors, Platt said, is with secured claimants, whose nearly $5 billion in claims is collateralized by liens on aircraft, airport gates and other AMR assets.

It's in the best interest of the unsecured group to take an awful lot of risk to try to raise value, said Platt, a member of restructuring industry group the Turnaround Management Association. Secureds will be unwilling to accept any restructuring proposal that puts their money at risk.

For that reason, Platt said he would not be surprised to see the trustee appoint a separate committee to advocate for secured creditors.

The bankruptcy case is In re AMR Corp et al, U.S. Bankruptcy Court, Southern District of New York, No. 11-15463.

(Reporting by Nick Brown; Editing by Gary Hill)

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