American Airlines 2005 Annual Report Download - page 65

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6. Indebtedness (Continued)
Also in September 2005, American purchased certain debt obligations due October 2006 with a face value of
$261 million at par value from an institutional investor. In conjunction with the purchase, American borrowed an
additional $245 million under an existing mortgage agreement with a final maturity in December 2012 from the
same investor. The interest rate on the mortgage agreement remains substantially unchanged. The additional
borrowings required American to grant a security interest in certain spare engines and related collateral. The
transaction was accounted for as a modification of the original debt under Emerging Issues Task Force Issue 96-
19 “Debtor’s Accounting for a Modification or Exchange of Debt Instruments”. As a result of this transaction, the
Company’s 2006 maturities of long-term debt decreased from $1.3 billion to $1.1 billion.
In November 2005, the New York City Industrial Development Agency issued facilities sublease revenue bonds
for John F. Kennedy International Airport to provide reimbursement to American for certain facility construction
and other related costs. The Company has recorded the issuance of $775 million (net of $25 million discount) as
long-term debt on the consolidated balance sheet as of December 31, 2005. The bonds bear interest at fixed
rates, with an average effective rate of 8.06 percent, and mature over various periods of time, with a final maturity
in 2031. Proceeds from the offering are to be used to reimburse past and future costs associated with the
Company’s terminal construction project at JFK. As of December 31, 2005, the Company had received
approximately $491 million of the proceeds as reimbursements of certain facility construction and other related
costs. The remaining $284 million of bond issuance proceeds are classified as Other assets on the consolidated
balance sheet, of which $207 million are held by the trustee for reimbursement of construction costs and will be
available to the Company in the future, and $77 million are held in a debt service reserve fund.
During the year ended December 31, 2005, AMR Eagle borrowed approximately $319 million, net of discount,
under various debt agreements related to the purchase of regional jet aircraft. These debt agreements are
secured by the related aircraft, have effective interest rates ranging from 5.00 percent to 5.13 percent, are
guaranteed by AMR and mature over various periods of time through 2021.
American has a credit facility consisting of a $540 million senior secured revolving credit facility and a $248 million
term loan facility (the Revolving Facility and the Term Loan Facility, respectively, and collectively, the Credit
Facility). Advances under either facility can be designated, at American’s election, as LIBOR rate advances or
base rate advances. Interest accrues at the LIBOR rate or base rate, as applicable, plus, in either case, the
applicable margin. The applicable margin with respect to the Revolving Facility can range from 3.25 percent to
5.25 percent per annum, in the case of LIBOR advances, and from 2.25 percent to 4.25 percent per annum, in the
case of base rate advances, depending upon the senior secured debt rating of the Credit Facility. As of
December 31, 2005, the Credit Facility was fully drawn and had an interest rate of 8.73 percent. The interest rate
is reset at least every six months based on the current LIBOR rate election.
The Revolving Facility matures on June 17, 2009. Commitments under the Revolving Facility are reduced on a
quarterly basis with $15 million (or 2.5 percent) of the commitments being reduced in each of the first twelve
quarters of the life of the Revolving Facility and the remainder due at maturity. Principal amounts repaid under the
Revolving Facility may be re-borrowed, up to the then-available aggregate amount of the commitments.