American Airlines 2005 Annual Report Download - page 66

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6. Indebtedness (Continued)
The Term Loan Facility matures on December 17, 2010. The Term Loan Facility amortizes 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 certain 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 (the Liquidity 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 $1.25 billion for each quarterly period through the remaining life of the
Credit Facility. American was in compliance with the Liquidity Covenant as of December 31, 2005 and expects to
be able to continue to comply with this covenant. In addition, the Credit Facility contains a covenant (the
EBITDAR 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, 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
AMR was in compliance with the EBITDAR Covenant at December 31, 2005 and expects to be able to comply
with this covenant for the period ending March 31, 2006. However, given the historically high price of fuel and the
volatility of fuel prices and revenues, it is difficult to assess whether AMR and American will, in fact, be able to
continue to comply with the Liquidity Covenant and, in particular, the EBITDAR Covenant, and there are no
assurances that AMR and American will be able to comply with these covenants. Failure to comply with these
covenants would result in a default under the Credit Facility which - - if the Company did not take steps to obtain a
waiver of, or otherwise mitigate, the default - - could result in a default under a significant amount of the
Company’s other debt and lease obligations and otherwise adversely affect the Company.
In 2004, American issued $180 million of Fixed Rate Secured Notes due 2009, which bear interest at 7.25
percent. As of December 31, 2005, these notes were secured by certain spare parts and cash collateral.