Docket Update: Marathon Seeks Appointment of Examiner in AMR's bankruptcy

Today, Marathon Asset Management filed a motion (Docket #5089) to appoint an examiner in American Airline's bankruptcy. Marathon has been all over the AMR bankruptcy docket since the commencement of the case including being a part of a group of creditors represented by Vedder Price disclosed in a Rule 2019 docket entry (other creditors included Anchorage, BlueMountain, Cyrus Capital, Trilogy Capital, to name a few). In the document, Marathon states that it owns "well over a hundred million dollars of claims against the Debtors, including substantial claims against American Airlines"

The motion to appoint an examiner stems from arguments from Marathon (and other creditors) that questionable transactions occurred between AMR Corporation, American Eagle Airlines, Inc and American Airlines, Inc in the months proceeding the bankruptcy. The document above (the motion to appoint an examiner) lays out specifics of Marathon's arguments and a fascinating read for those that are involved in the American Airlines bankruptcy case. Specifically, claims traders that have participated in various parts of AMR corporate structure.

The document summarizes Marathon's main contention:

"In the weeks leading up to the filing of the Debtors’ chapter 11 cases, American Eagle and American Airlines consummated a series of intercompany transactions that resulted in American Airlines assuming $2.26 billion of dollars in additional debt that American Eagle previously owed to the Financing Parties (the “Prepetition Transactions”). On their face, the Prepetition Transactions raise serious questions as to whether American Airlines received fair value in exchange for incurring the billions of dollars in debt and as to whether these transactions were otherwise improper." 
And continues in more detail later in the document:
"According to the Rule 9019 Motion, at the time of the Prepetition Transactions, American Eagle’s outstanding debt to the Financing Parties was approximately $2.26 billion. The Debtors claim that the value of the 263 regional jets at the time of the transfers was $1.8 billion, or $426 million less than the amount of the assumed debt. In addition, the Debtors claim that American Eagle cancelled certain intercompany payables of American Airlines to American Eagle and settled other intercompany receivables and payables...
...While, arithmetically speaking, it appears possible from the face of the Rule 9019 Motion that the transactions entered into between American Airlines and American Eagle just before the Debtors’ bankruptcy filing were an “even swap,” there is insufficient public evidence to reach that conclusion. It is no comfort that the Debtors make a bald assertion by the Debtors that avoidance of the $2.26 billion in debt assumed by American Airlines is “at best, remote.” To the extent that the transactions were in fact an “even swap,” it is unclear why they would have helped clean up the American Eagle balance sheet for the planned spin-off, or why they would have resulted, just months later, in a proposed deal with the Financing Parties, described in the Rule 9019 Motion and below, in which American Airlines is abandoning some of the Aircraft, and in which the Aircraft Parties are agreeing that the Aircraft are worth hundreds of millions of dollars less than they were supposedly worth a year ago."
For those that are not closely following the American Airlines bankruptcy case, the corporate structure is essentially AMR Corporation at the top as the parent of American Airlines, Inc and American Eagle Airlines, Inc. As Marathon noted in the motion, it holds "substantial claims against American Airlines" or American Airlines, Inc. By American Airlines, Inc assuming substantial debt from American Eagle, the claims pool at American Airlines, Inc got a lot larger (assets in theory also increased, but as the motion points out, assets were far less in reality). The bet here is that these transfers are avoided and the claims pool shrinks and recovery (all else being equal is higher) for American Airlines, Inc claims. Currently, AMR Inc claims trade in the low 40s context (AMR Corp - the double dip claims trade in the mid 60s).

A hearing date for the motion has been set to November 8th (objections due by November 1st). We will keep readers updated on how the proceedings play out. Marathon's motion is embedded below:

AMR - Marathon Examiner Motion                                                                                            



hunter [at] distressed-debt-investing [dot] com

About Me

I have spent the majority of my career as a value investor. For the past 8 years, I have worked on the buy side as a distressed debt and high yield investor.