U.S. Bank Trust Nat'l Ass'n v. Am. Airlines, Inc. (In re AMR Corp.)

485 B.R. 279

In re AMR CORPORATION, et al., Debtors.

U.S. Bank Trust National Association, not in its individual capacity, but solely as Trustee and Security Agent under the Indenture and Aircraft Security Agreement for the American Airlines 2009–2 Senior Secured Notes Due 2016, Plaintiff,

v.American Airlines, Inc., Defendant.

U.S. Bank Trust National Association, not in its individual capacity, but solely as Loan Trustee under Indenture and Security Agreement with respect to the AMR 2009–1 EETC transaction and AMR 2011–2 EETC transaction, Plaintiff,

v.American Airlines, Inc., Defendant.

Bankruptcy No. 11–15463 (SHL).

Adversary Nos. 12–01932 (SHL), 12–01946 (SHL).

United States Bankruptcy Court, S.D. New York.

Jan. 17, 2013.

Debevoise & Plimpton LLP, By: Michael E. Wiles, Esq., Richard F. Hahn, Esq., Jasmine Ball, Esq., New York, NY, Special Aircraft Attorneys for the Debtors and Debtors in Possession.

Weil, Gotshal & Manges LLP, By: Harvey R. Miller, Esq., Stephen Karotkin, Esq., Alfredo R. Pérez, Esq., New York, NY, for Debtors and Debtors in Possession.

Chapman and Cutler LLP, By: James E. Spiotto, Esq., Ann E. Acker, Esq., Franklin H. Top III, Esq., Chicago, IL, Craig M. Price, Esq., Laura E. Appleby, Esq., New York, NY, for U.S. Bank Trust National Association, as Loan Trustee for 2009–1 EETC and 2011–2 EETC Transactions.

Shipman and Goodwin LLP, By: Ira H. Goldman, Esq., Corrine L. Burnick, Esq., Hartford, CT, for U.S. Bank Trust National Association, as Loan Trustee for 2009–1 EETC and 2011–2 EETC Transactions.

Sidley Austin LLP, By: Michael G. Burke, Esq., Nicholas K. Lagemann, Esq., Noam M. Besdin, Esq., New York, NY, for U.S. Bank Trust National Association, as Trustee and Security Agent for the American Airlines, Inc. 2009–2 Secured Notes Due 2016.

Shipman and Goodwin LLP, By: Ira H. Goldman, Esq., Kathleen M. LaManna, Esq., Corrine L. Burnick, Esq., Hartford, CT, for U.S. Bank Trust National Association, as Trustee and Security Agent for the American Airlines, Inc. 2009–2 Secured Notes Due 2016.

MEMORANDUM OF DECISION

SEAN H. LANE, Bankruptcy Judge.

Before the Court is the motion (the “Motion”) of the above-captioned debtors and debtors-in-possession (collectively, the “Debtors”) for authority to enter into a postpetition secured financing transaction and for authority to use cash on hand, including the proceeds of the new financing, to repay the obligations of American Airlines, Inc. (“American”), one of the Debtors, under certain prepetition financing transactions. U.S. Bank National Association (“U.S. Bank”), in its capacity as loan trustee and security agent for these same prepetition financing transactions, objects to the Motion by arguing, among other things, that American may not repay those obligations without also paying a premium referred to as a “Make–Whole Amount.” For the reasons set forth below, the Court agrees with the Debtors that the prepetition financing transactions by their terms do not require payment of the Make–Whole Amount where, as here, the obligations have been accelerated by virtue of the Debtors' filing for bankruptcy. Accordingly, the Court grants the Debtors' Motion and overrules the objections of U.S. Bank. The Court also denies U.S. Bank's related motion to lift the automatic stay to decelerate the amounts due under these financing transactions.

BACKGROUND

On November 29, 2011, the Debtors filed a voluntary petition for relief under Chapter 11 of the Bankruptcy Code. Prior to the bankruptcy, American was party to three separate financing transactions, each of which is secured by a discrete pool of aircraft (collectively, the “Aircraft”). One transaction, entered into in July 2009, involved the issuance of notes secured by certain of the Aircraft (the “2009–2 Secured Notes Financing”). The remaining two transactions were structured as enhanced equipment trust certificate (“EETC”) financings, which involved the issuance of equipment notes secured by certain Aircraft. The first EETC financing was entered into in July 2009 (the “2009–1 EETC Financing”) and the second in October 2011 (the “2011–2 EETC Financing,” and together with the 2009–2 Secured Notes Financing and the 2009–1 EETC Financing, the “Prepetition Financing”).

Section 4.01(g) in each of the indenture agreements for the Prepetition Financing (collectively, the “Indentures”) sets forth the circumstances that constitute an event of default of the agreement.¹ That section specifically provides that, among other things, the filing of a voluntary bankruptcy petition constitutes an event of default.² Section 4.02 of the Indentures sets forth the remedies available upon an event of default. On the one hand, the Loan Trustee generally has the right to pursue remedies—but need not do so—for most events of default. On the other hand, Section 4.02 provides that some events of default automatically result in acceleration of the Debtors' loan obligations without any furtheraction by any party. For example, if an event of default under Section 4.01(g) of the Indentures occurs and is continuing—such as the filing of a bankruptcy—the balance owing under the Prepetition Notes is automatically accelerated and the unpaid principal amount, along with accrued but unpaid interest, immediately becomes due and payable.

The Indentures also have a provision, Section 2.11, that permits American to voluntarily redeem the notes issued under the Indentures (the “Prepetition Notes”). In the event of a voluntary redemption, the Indentures spell out the items to be paid, including a “Make–Whole Amount, if any”: ³

[A]ll, but not less than all, of the Equipment Notes may be redeemed by the Company at any time upon at least 15 days' revocable prior written notice to the Loan Trustee and the Noteholders, and such Equipment Notes shall be redeemed in whole at a redemption price equal to 100% of the unpaid principal amount thereof, together with accrued and unpaid interest thereon to (but excluding) the date of redemption and all other Secured Obligations owed or then due and payable to the Noteholders, plus Make–Whole Amount, if any ...

(2011–2 EETC Indenture § 2.11(a) (emphasis added); see also 2009–1 EETC Indenture § 2.11(a); 2009–2 Secured Notes Indenture § 2.20). But no such Make–Whole must be paid where certain kinds of defaults have occurred, including the filing of a bankruptcy as contemplated under Section 4.01(g):

If an Event of Default shall have occurred and be continuing and so long as the same shall continue unremedied, then and in every such case the Loan Trustee may, and upon the written instructions of a Majority in Interest of Noteholders, the Loan Trustee shall, do one or more of the following to the extent permitted by, and subject to compliance with the requirements of, applicable law then in effect:

...

(i) declare by written notice to the Company all the Equipment Notes to be due and payable, whereupon the aggregate unpaid principal amount of all Equipment Notes then outstanding, together with accrued but unpaid interest thereon and all other amounts due thereunder (but for the avoidance of doubt, without Make–Whole Amount), shall immediately become due and payable without presentment, demand, protest or other notice, all of which are hereby waived; provided that if an Event of Default referred to in Section 4.01(f), Section 4.01(g), Section 4.01(h) or Section 4.01(i) shall have occurred and be continuing, then and in every such case the unpaid principal amount of the Equipment Notes then outstanding, together with accrued but unpaid interest thereon and all other amounts due thereunder (but for the avoidance of doubt, without Make–Whole Amount), shall immediately and without further act become due and payable without presentment, demand, protest or notice, all of which are hereby waived....

(2011–2 EETC Indenture § 4.02(a)(i) (emphasis added); see also 2009–1 EETC Indenture § 4.02(a)(i); 2009–2 Secured Notes Indenture § 4.02(a)(i)).

Almost one month after the filing of these bankruptcy cases, the Debtors proposed procedures to the Court to address the requirements of Bankruptcy Code Section 1110, which generally provides an exception to the automatic stay to permit an aircraft financer to repossess its collateral 60 days after a bankruptcy filing unless the debtor agrees to cure any non-bankruptcy defaults and perform under the agreement. 11 U.S.C. § 1110(a)(2); see First Nat'l Bank of Boston v. Shugrue (In re Ionosphere Clubs, Inc.), 123 B.R. 166, 169 (S.D.N.Y.1991); In re Air Nat'l Aircraft Sales and Serv., Inc., 53 B.R. 310, 316 (Bankr.E.D.N.Y.1985). On December 23, 2011, the Court entered an Order Authorizing the Debtors to (I) Enter Into Agreements Under Section 1110(a) of the Bankruptcy Code, (II) Enter Into Stipulations to Extend the Time to Comply with Section 1110 of the Bankruptcy Code and (III) File Redacted Section 1110(b) Stipulations (ECF No. 455) (the “1110 Order”). The 1110 Order gave the Debtors the authority to, among other things, (i) enter agreements (the “1110 Agreements”) committing to perform their obligations under various aircraft financing agreements, (ii) make ongoing payments under such financing agreements, and (iii) cure certain defaults under the financing agreements, all of which was necessary for the Debtors to gain the protection of the automatic stay under Section 1110 of the Bankruptcy Code. Under the procedures implemented by the 1110 Order, the Debtors could make an 1110 Agreement by filing a notice of election with respect to the applicable aircraft. The Debtors filed notices of election with respect to each of the three Prepetition Financings.⁴

As of September 30, 2012, American was indebted in the principal amount of $445,618,425 for the 2009–1 EETC Financing, $174,163,156 for the 2009–2 Secured Notes Financing and $703,645,330 for the 2011–2 EETC Financing, plus all unpaid interest, fees, costs and expenses under the applicable Indentures and related documents. The...