American Airlines 2004 Annual Report Download - page 63

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6. Indebtedness (Continued)
The Term Loan Facility matures on December 17, 2010. The Term Loan Facility will amortize on a quarterly basis
over a period of six years, with less than $1 million (or 0.25 percent) of the principal payable quarterly in each of
the first 20 quarters and the remainder due at maturity. Principal amounts repaid under the Term Loan Facility
may not be re-borrowed.
The Credit Facility is secured by the same aircraft collateral as were pledged to secure the prior bank credit facility,
as well as an additional 72 aircraft (consisting of McDonnell Douglas MD-80, Boeing 757-200 and Boeing 767-300
model aircraft). The Credit Facility includes a covenant that requires periodic appraisal of the aircraft at current
market value and requires American to pledge more aircraft or cash collateral if the loan amount is more than 50
percent of the appraised value (after giving effect to sublimits for specified categories of aircraft). In addition, the
Credit Facility is secured by all of American’s existing route authorities between the United States and Tokyo,
Japan, together with certain slots, gates and facilities that support the operation of such routes. American’s
obligations under the Credit Facility are guaranteed by AMR, and AMR’s guaranty is secured by a pledge of all the
outstanding shares of common stock of American.
The Credit Facility contains a covenant requiring American to maintain, as defined, unrestricted cash,
unencumbered short term investments and amounts available for drawing under committed revolving credit
facilities of not less than $1.5 billion for each quarterly period through September 30, 2005 and $1.25 billion for
each quarterly period thereafter. In addition, the Credit Facility contains a covenant requiring AMR to maintain a
ratio of cash flow (defined as consolidated net income, before interest expense (less capitalized interest), income
taxes, depreciation and amortization and rentals, adjusted for certain gains or losses and non-cash items) to fixed
charges (comprising interest expense (less capitalized interest) and rentals) of at least the amount specified below
for each period of four consecutive quarters ending on the dates set forth below:
Four Quarter Period Ending Cash Flow Coverage Ratio
December 31, 2004 0.90:1.00
March 31, 2005 0.85:1.00
June 30, 2005 0.85:1.00
September 30, 2005 0.90:1.00
December 31, 2005 1.10:1.00
March 31, 2006 1.20:1.00
June 30, 2006 1.25:1.00
September 30, 2006 1.30:1.00
December 31, 2006 1.30:1.00
March 31, 2007 1.35:1.00
June 30, 2007 1.40:1.00
September 30, 2007 1.40:1.00
December 31, 2007 1.40:1.00
March 31, 2008 (and each fiscal quarter
thereafter) 1.50:1.00
The Credit Facility also contains customary events of default, including cross defaults to other obligations and
certain change of control events. Upon the occurrence of an event of default, the outstanding obligations under
the Credit Facility may be accelerated and become due and payable immediately.
American and AMR were in compliance with these covenants as of December 31, 2004.
During the year ended December 31, 2004, AMR Eagle borrowed approximately $646 million (net of discount),
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 2021. As of
December 31, 2004, the effective interest rate on these agreements ranged up to 5.35 percent. These debt
agreements are guaranteed by AMR.
In addition, in February 2004, American issued $180 million of Fixed Rate Secured Notes due 2009, which bear
interest at 7.25 percent. As of December 31, 2004, these notes were secured by certain spare parts and cash
collateral.