American Airlines 2003 Annual Report Download - page 63

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6. Indebtedness (Continued)
American has a fully drawn $834 million bank credit facility that expires December 15, 2005, which contains a
liquidity covenant and an EBITDAR (generally, earnings before interest, taxes, depreciation, amortization and
rentals, adjusted for certain non-cash items) to fixed charges (generally, interest and total rentals) ratio covenant.
The required EBITDAR to fixed charges ratio is 1.1 to 1.0 for the three-month period ending March 31, 2004, and
increases on a quarterly basis up to 1.5 to 1.0 for each four consecutive quarters ending after December 31, 2004.
The liquidity covenant requires American to maintain a minimum level of $1.0 billion of unrestricted cash and short-
term investments. The Company expects to be able to continue to comply with these covenants. However, it
cannot be sure that it will continue to be able to do so through the expiration of the facility. Failure to do so would
result in a default under this facility and a significant amount of American’s other debt.
During the year ended December 31, 2003, American borrowed approximately $554 million, under seller financed
debt agreements, related to the purchase of aircraft. These debt agreements are secured by the related aircraft
and have effective interest rates, which are fixed and mature over various periods of time through 2013. As of
December 31, 2003, the effective interest rate on these agreements ranged up to 9.12 percent.
During the year ended December 31, 2003, AMR Eagle borrowed approximately $473 million, under various debt
agreements, related to the purchase of regional jet aircraft, including certain seller financed agreements. These
debt agreements are secured by the related aircraft and have effective interest rates, which are fixed or variable
based on LIBOR plus a spread and mature over various periods of time through 2020. As of December 31, 2003,
the effective interest rate on these agreements ranged up to 6.73 percent.
In addition, in July 2003, American issued $255 million of enhanced equipment trust certificates, secured by
aircraft, which bear interest at 3.86 percent and are repayable in semi-annual installments beginning in 2004, with
a final maturity in 2010. These obligations are partially insured by a third party.
In September 2003, the Company issued $300 million principal amount of its 4.25 percent senior convertible notes
due 2023 in a private placement. Each note is convertible into AMR common stock at a conversion rate of 57.61
shares per $1,000 principal amount of notes (which represents an equivalent conversion price of $17.36 per
share), subject to adjustment in certain circumstances. The notes are convertible under certain circumstances,
including if (i) the closing sale price of the Company’s common stock reaches a certain level for a specified period
of time, (ii) the trading price of the notes as a percentage of the closing sale price of the Company’s common
stock falls below a certain level for a specified period of time, (iii) the Company calls the notes for redemption, or
(iv) certain corporate transactions occur. Holders of the notes may require the Company to repurchase all or any
portion of the notes on September 23, 2008, 2013 and 2018 at a purchase price equal to the principal amount of
the notes being purchased plus accrued and unpaid interest to the date of purchase. The Company may pay the
purchase price in cash, common stock or a combination of cash and common stock. After September 23, 2008,
the Company may redeem all or any portion of the notes for cash at a price equal to the principal amount of the
notes being redeemed plus accrued and unpaid interest as of the redemption date. These notes are guaranteed
by American.
Also in September 2003, American transferred its two headquarters buildings located in Fort Worth, Texas to AA
Real Estate Holding L.P., a wholly owned consolidated subsidiary of American. This entity leased the buildings
back to American pursuant to a triple-net lease, and used the buildings and the lease as security for a loan
consisting of four notes, in the amount of $98 million (net of discount of $2 million), which is reflected as debt in the
accompanying consolidated balance sheet of the Company. Each note corresponds to a separate class of AA/Ft.
Worth HQ Finance Trust Lease Revenue Commercial Mortgage-Backed Pass-Through Certificates, Series 2003
(the Certificates) issued by the AA/Ft. Worth HQ Finance Trust, which is not a subsidiary of American, in a private
placement pursuant to Rule 144A under the Securities Act of 1933. The Certificates and corresponding notes have
an average effective interest rate of 7.2 percent and a final maturity in 2010.