AMR Corporation, American Airlines, Inc., AMR Eagle Holding Corporation and seventeen other direct and indirect subsidiaries listed in Schedule A to the Interim Order, as hereinafter defined, (collectively, the “Debtors”) filed Tuesday of this week for protection under Chapter 11 of the United States Bankruptcy Code in the United States Bankruptcy Court for the Southern District of New York (the “Court”).
One of the “first day orders” issued by the Court, was an Interim Order Establishing Notification Procedures and Approving Restrictions on Certain Transfers of Claims against and Interests in the Debtors’ Estates (the “Interim Trading Order”).
The Interim Trading Order is effective as of November 29, 2011 (the “Commencement Date”), subject to whatever changes may be made in the “Final Trading Order” to be issued after a hearing currently scheduled for December 22, 2011 at 10:00a.m. (Easter Time).
The Interim Trading Order and Final Trading Order will be of interest to:
(A) any person holding or investing in (i) common stock of AMR Corporation or securities that may entitle a person to acquire stock of AMR Corporation or (ii) securities that represent obligations of or claims against any of the Debtors or certain special purpose issuers of tax exempt debt and other debt in transactions undertaken for the benefit of the Debtors; and
(B) lawyers or investment banking professionals interested in the implications to tax exempt financing structures and leverage lease financing structures of proceedings under Chapter 11 of the Bankruptcy Code in respect of the user of the facilities or equipment so financed.
The Interim Trading Order is typical of such orders in some respects and is atypical in others and includes the following major elements (the following summary being qualified in its entirety to the text of the twenty four page order and related exhibits which may be obtained on line at http://www.amrcaseinfo.com/index.php):
Trading in AMR Stock:
1. Certain persons and certain groups of persons (“Reporting Entities”) who are “Substantial Equity Holders” as of the Commencement Date or thereafter become Substantial Equity Holders must file a notice (a “Substantial Ownership Notice”) with the Bankruptcy Court and serve it upon the attorneys for the Debtors and the attorneys for any statutory committee of unsecured creditors appointed in the Debtors’ bankruptcy cases (the “Creditors’ Committee”) within 10 business days after the later of: (a) date of entry of the Interim Trading Order or (b) the date the Reporting Entity becomes a Substantial Equity Holder. A Substantial Equity Holder is a Reporting Entity that has “beneficial ownership” of at least 14,964,345 shares of AMR’s common stock (“AMR Stock”). The term “beneficial ownership” is to be determined in accordance with the applicable rules under Section 382 of the Internal Revenue Code of 1986, as amended (the “Tax Code”), and includes direct and indirect ownership, ownership by certain family members and members of a group acting pursuant to formal or informal understanding to make coordinated acquisitions and ownership of certain options to acquire AMR Stock. The question of whether investment entities under common management but having different ownership will be aggregated for purposes of this restriction will be an issue on which there could be differences of opinion depending upon the facts and circumstances.
2. At least 20 business days prior to any proposed date of transfer of any “equity securities” that would result in an person or group of persons becoming a Substantial Equity Holder or result in an increase in the amount of AMR Stock beneficially owned by a Substantial Equity Holder, such person or group of persons must file a notice (an “Equity Acquisition Notice”) with the Bankruptcy Court and serve it upon the attorneys for the Debtors and the attorneys for any Creditors’ Committee. Unless the Debtors approve the proposed transfer in writing within 15 business days after the Equity Acquisition Notice is filed, it will be deemed rejected and that transfer may not take place.
Trading in Claims against Debtors and Others:
1. The Interim Trading Order purports to restrict trading in any unsecured claims under which any of the Debtors is the obligor, and also includes (pursuant to an atypical provision) (a) the unsecured portion of the Tax-Exempt Bonds listed in Schedule B to the Interim Trading Order and (b) Leverage Lease Obligations (i.e., debt instruments issued by any obligor (other than the Debtors) in a Leveraged Lease Structure, and all ETCs , PTCs and/or EETCs issued in respect of a Leverage Lease Structure ( i.e., such structures involving a lease of aircraft to any of the Debtors)), but only where the holder of such Leveraged Lease Obligations acquired the same from the equity participant or lessor pursuant to a foreclosure, voluntary or involuntary transfer, or any other acquisition of collateral (all of the foregoing treated as “Claims against the Debtors”). There is a procedure for determining whether a claim is described in clause (b) of the above definition if the holder of the claim is uncertain.
2. Persons and certain groups of Persons (“Reporting Entities”) who are Substantial Claimholders on the date of entry of the Interim Trading Order or the Final Trading Order or who anytime thereafter become Substantial Claimholders must provide notice (a “Notice of Substantial Claimholder Status”) thereof within 10 business days after the later of: (a) date of entry of such order or (b) the date the Reporting Entity becomes a Substantial Claimholder. A Substantial Claimholder is a Reporting Entity that has “beneficial ownership” of an aggregate dollar amount of Claims against the Debtors of more than the Threshold Amount, which is initially set in the Interim Trading Order at $190,000,000. The term “beneficial ownership” is to be determined in accordance with the applicable rules under Section 382 of the Internal Revenue Code of 1986, as amended (the “Tax Code”), and includes direct and indirect ownership, ownership by certain family members and members of a group acting pursuant to formal or informal understanding to make coordinated acquisitions of Claims and/or stock. The question of whether investment entities under common management but having different ownership will be aggregated for purposes of this restriction will be an issue on which there could be differences of opinion depending upon the facts and circumstances.
3. At least 20 business days prior to any proposed date of transfer of any Claims that would result in an person or group of persons becoming a Substantial Claimholder or result in an increase in the amount of Claims beneficially owned by a Substantial Claimholder, such person or group of persons may file a notice (a “Claim Acquisition Notice”) with the Bankruptcy Court and serve it upon the same parties as above. Unless the Debtors approve the proposed transfer in writing within 15 business days after the Claim Acquisition Notice is filed, it will be deemed rejected and that transfer may not take place.
4. There is an “Electing Claimholder” provision, which permits a person or Entity to freely trade in Claims against the Debtors if files a notice (the “Election Notice”) with the Bankruptcy Court and serves it upon the Debtors, the attorneys for the Debtors and the attorneys for any Creditors’ Committee within 10 business days after the later of: (a) the date of the first purchase or other transaction after the date of the Interim Trading Order that results in an increase in the beneficial ownership of Claims by a Substantial Claimholder; and (b) the date of the purchase or other transaction after the date of the Interim Trading Order that results in such Electing Claimholder becoming a Substantial Claimholder. The Electing Claimholder may not participate in formulating any chapter 11 plan of reorganization of or on behalf of the Debtors; provided that if the Electing Claimholder does not disclose or make evident (unless compelled to do so by order of a court or other legal requirement) to the Debtors that such Electing Claimholder has beneficial ownership of “Newly Traded Claims” (claims that are not “ordinary course indebtedness”, within the meaning of Section 1.382-9(d)(2)(iv) of the Treasury Regulations, in which the same person or Entity has always had a beneficial ownership, and that are acquired after a date 18 months prior to the Commencement Date), the Electing Claimholder may: (a) file an objection to any proposed disclosure statement or to confirmation of a proposed plan of reorganization; (b) vote to accept or reject a proposed plan of reorganization; (c) review and comment on a proposed business plan; (d) provide information on a confidential basis to attorneys for the Debtors; (e) become a general member of any official committee or ad hoc committee; or (f) take any action required by a court order. The Electing Claimholder also agrees to abide by any Sell-Down Notice mandating a sale of Claims beneficially owned by the Electing Claimholder to the extent the Debtors determine such sale is appropriate to reasonably ensure that the requirements of Section 382(l)(5) of the Tax Code will be satisfied and such determination is approved by the Bankruptcy Court. The Electing Claimholder also agrees that any transfer or acquisition of Claims following the issuance of a notice of intent to implement a plan of reorganization relying on Section 382(l)(5) of the Code is subject to the advance approval process applicable to non-electing Claim holders.
5. A Claim holder that violates the general provisions of the Interim Trading Order or Final Trading Order may be treated as a Deemed Electing Claimholder (subject to all of the requirements described in 4 above including mandatory sell-down and restrictions on participation in formulation of any plan of reorganization), may be ordered to divest itself of beneficial ownership of any Claims acquired in violation of the Order; may be subjected to monetary damages and may be subjected to any other order the Bankruptcy Court may find to be appropriate.
6. Transfers of Claims described in Section 1.382-9(d)(5)(ii) of the Treasury Regulations (certain transfers: (a) among certain related persons and entities; (b) pursuant to loan syndication; (c) pursuant to certain testamentary transfer or gift transfers; (d) pursuant to divorce or separations; (e) pursuant to certain subrogation arrangements; (f) pursuant to certain accounts receivable factoring transactions; or (g) pursuant to certain transfers by underwriters of the related debt instrument) are exempted from the foregoing provisions provided the transfer is not for the principal purpose of acquiring stock in the reorganized Debtors or permitting the transferee to benefit from the losses of the Debtors within the meaning of Section 1.382-9(d)(5)(iii) of the Treasury Regulations and the transferee complies with the Notice of Substantial Claimholder Status requirements.
In General:
1. We note that the Interim Trading Order does not contain a number of exceptions (including exceptions and/or special rules for: (a) actions by an Agent; (b) offsetting acquisitions and disposition; (c) short sales and on-lending; (d) collateral for money loans; (e) participations; (f) acquisitions of ownership interests in Substantial Claimholders; (g) the treatment of enforceable netting agreements) recommended by The Bond Market Association/Loan Syndication and Trading Association in their Model Final NOL Trading Order published in 2006 to facilitate orderly market operations.
2. Members of our Bankruptcy, Tax and Aircraft Finance Groups would be pleased to assist any clients with issues it may have in relation to the Interim Trading Order or any other aspect of the Chapter 11 proceedings relating to the Debtors.
