* Holders of over $700 mln unsecured bond debt join
* Group yet to form view on proposed AMR merger-sources
* Group includes York Capital, King Street Capital
* Labor union says US Air only realistic merger partner for
By Soyoung Kim and Nick Brown
NEW YORK, May 24 Hedge funds York Capital
Management and King Street Capital are among a handful of AMR
Corp bondholders joining forces in hopes of boosting
potential paybacks on more than $700 million in unsecured AMR
debt, according to people familiar with the matter.
The group, which also includes Marathon Capital, Claren Road
Asset Management, Pentwater Capital Management and Litespeed
Management, is studying a proposal from US Airways Group Inc
to merge with the bankrupt parent of American Airlines,
but has yet to pledge support for the idea, the people said.
The group plans to study merger scenarios to determine if a
deal with US Airways or another carrier will yield higher
recovery on their bankruptcy claims than AMR's plan to emerge
from bankruptcy independently, the sources said.
The bondholders have organized in recent weeks, retaining
bankruptcy lawyers from White & Case and financial advisers from
Houlihan Lokey. The group holds some $700 million to $1 billion
of AMR's total $2.4 billion in unsecured debt, the sources said.
Hedge fund Appaloosa Management LP has expressed some
interest in potentially joining the group but is not a member
yet, they said. Appaloosa declined to comment.
The organizing of some AMR bondholders comes as AMR has
agreed to work with its unsecured creditors committee to develop
potential merger scenarios while it is still in bankruptcy,
bowing to pressure from its labor unions and other creditors to
consider a merger with US Airways.
Before that May 11 agreement, AMR had shrugged off interest
expressed by smaller rival US Airways, saying it could consider
a tie-up after it exits bankruptcy as a standalone company.
AMR filed for bankruptcy in November, citing untenable labor
costs. The company has said it needs to shed $1.25 billion in
annual labor costs to become profitable.
AMR said it will consider all restructuring options,
including a "full range of potential consolidation scenarios,"
in addition to a standalone plan.
"What's best for our company, our people and our financial
stakeholders will be determined by the facts in a disciplined
manner and process," the company said in a statement on
The bondholders already have a standing on AMR's unsecured
creditors committee, but only indirectly through the banks
acting as their trustees: Wilmington Trust Co, Bank of New York
Mellon Corp and Manufacturers & Traders Trust Co.
Forming a group outside the committee could give bondholders
a more robust role in restructuring negotiations, as creditors'
committee members must act not only on their own behalf, but in
the interest of creditors overall.
The sources asked not to be named because the matter is not
public. Houlihan Lokey, White & Case and the bondholders named
in the story did not have immediate comment.
The bondholder group has started preliminary discussions
with AMR management and signed a confidentiality agreement to
gain access to the airline's financials, business and potential
merger scenarios, the sources said.
White & Case has a track record of representing influential
ad hoc creditor factions in large restructurings, including in
the bankruptcies of Lehman Brothers and Adelphia Communications.
The firm, along with Houlihan Lokey, also represents bondholders
in Residential Capital's (ResCap) bankruptcy.
Separate from the bondholders that have come together under
one umbrella, there are several mutual funds, including
OppenheimerFunds Inc, that hold large chunks of AMR debt but are
invested in a different part of the airline's capital structure,
according to the people close to the matter.
It remains unclear whether those funds' interests will be
aligned with the bondholder group's. A spokeswoman for
OppenheimerFunds declined to comment.
People familiar with AMR management's thinking have said
that management wants to negotiate a merger on its own terms
after emerging from bankruptcy, and could set its sights on
different targets, ranging from JetBlue Airways Corp to
Alaska Air Group Inc to US Airways.
But the president of the Allied Pilots Association, which
represents AMR's pilots, told Reuters this week that US Airways
is the only realistic and willing merger partner for AMR.
APA President David Bates said he had not seen interest from
either JetBlue or Alaska Air on a potential merger, while a deal
with bigger carriers United Continental Holdings Inc or
Delta Air Lines Inc would not get regulatory approval.
Bates said US Airways is the only company that has reached
out to the unions to pitch a merger.
The three unions representing AMR's pilots, flight
attendants and ground workers have struck a deal with US Airways
that they say would preserve more than 6,000 jobs that would
otherwise be doomed under AMR's standalone plan.
The APA is now working with US Airways' management and its
pilots union on a unified collective bargaining agreement, a
move Bates said could remove a major hurdle in securing a
US Airways has said that a merger would also generate at
least $1.2 billion a year in new value beyond the benefit that
could be passed on to employees of the combined carrier. AMR has
said its stand-alone plan would generate $3 billion in new
revenue and savings by 2017.
Virasb Vahidi, AMR's chief commercial officer, praised AMR's
"Our strategy is already working, with improvements in
revenue in the first quarter outpacing the industry, and
multi-year highs in our operating metrics," Vahidi told Reuters
on Thursday. "We expect we will continue to improve once we
complete our restructuring. It is simply misleading to suggest
The case is In re AMR Corp et al, U.S. Bankruptcy Court,
Southern District of New York, No. 11-15463.