American’s South American route financing raises collateral concerns

Washington DC
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The Bank of New York Mellon has joined Dallas-Fort Worth International airport in raising concerns regarding the collateral backing American Airlines' proposed up to $3.25 billion term financing backed by assets related to its South American route network.

The New York-based lender objects to the possible use of airport assets that are currently mortgaged by financings that it is trustee for, including revenue bonds that cover American's facilities at Los Angeles International and New York's John F. Kennedy International airports, in a filing with the bankruptcy court on 2 May.

The Fort Worth, Texas-based carrier said in its request to the court on 25 April that it planned to use "certain slots, gates and route authorities" related to its South American operation and possibly its Central American and Mexico operations to back the proposed up to $2.25 billion term loan and $1 billion revolving credit facility.

Dallas-Fort Worth objected to the use of facilities at the airport as security for the debt because of language in its lease with American that bars it from doing so, in a filing on 1 May.

The use of slots and gates as collateral is not unusual. American used route authorities as well as gates and slots related to its operations to Beijing, London Heathrow, Shanghai Pudong, and Tokyo Haneda and Narita airports as security for its 7.5% senior secured notes that are due in 2016, which raised $1 billion in March 2011.

The airline cited the 7.5% 2016 notes as an example for the proposed South American route financing in its filing with the court.

In addition, Wilmington Trust requests a guarantee that none of the collateral included in American's proposed issue include that which is already included in the 7.5% 2016 notes, in a reservation of rights request to the court on 2 May. It is trustee of the existing debt.

Barclays Capital, Citi, Deutsche Bank, Goldman Sachs, JP Morgan and Morgan Stanley have provided American with commitments to act as joint lead arrangers for the proposed SGR financing, according to American's filing. Rothschild is financial adviser to the airline.

The South American routes term facility would have a six-year tenor and the revolver a five-year tenor.

Separately, the US Trustee has objected to an additional $10 million in compensation sought by Rothschild related to its advisory work for American on the proposed South American route financing. The trustee claims that the firm's work on the financing is covered by payments previously approved by the bankruptcy court.