American Airlines 2007 Annual Report Download - page 64

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6. Indebtedness (Continued)
Maturities of long-term debt (including sinking fund requirements) for the next five years are: 2008 - $902 million;
2009 - $1.2 billion; 2010 - $1.3 billion; 2011 – $2.1 billion, 2012 - $0.9 billion.
American’s credit facility consists of a $255 million senior secured revolving credit facility and a $440 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 2.50 percent to 4.00 percent
per annum, in the case of LIBOR advances, and from 1.50 percent to 3.00 percent per annum, in the case of
base rate advances, depending upon the senior secured debt rating of the Credit Facility. Based on ratings as of
December 31, 2007, the applicable margin with respect to the Revolving Facility is 3.00 percent per annum in the
case of LIBOR advances, and 2.00 percent per annum in the case of base rate advances. The applicable margin
with respect to the Term Loan Facility is 2.00 percent per annum in the case of LIBOR advances, and 1.00
percent per annum in the case of base rate advances. On March 30, 2007, American paid in full the principal
balance of its senior secured revolving credit facility, and the $255 million balance of the facility remains available
to American through maturity in June 2009.
The Term Loan Facility matures on December 17, 2010 and amortizes quarterly at a rate of $1 million. 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
appraisals 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 which have a final maturity of at least 12 months after the date of determination, of not
less than $1.25 billion for each quarterly period through the remaining life of the Credit Facility.
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). The required
ratio is 1.40 to 1.00 for each period of four consecutive quarters through the four quarter period ending March 31,
2009 and will increase to 1.50 to 1.00 for the four quarter period ending June 30, 2009 and each four quarter
period ending thereafter.0
AMR and American were in compliance with the Liquidity Covenant and the EBITDAR Covenant at December 31,
2007 and expect to be able to comply with these covenants. However, given fuel prices that are high by historical
standards 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 they will be able to do so. 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 have a material adverse impact on the Company.
In September 2005, American sold and leased back 89 spare engines with a book value of $105 million to a
variable interest entity (VIE). The net proceeds received from third parties were $133 million. American is
considered the primary beneficiary of the activities of the VIE as American has substantially all of the residual
value risk associated with the transaction. As such, American is required to consolidate the VIE in its financial
statements. At December 31, 2007, the book value of the engines was $87 million and was included in Flight
equipment on the consolidated balance sheet. The engines serve as collateral for the VIE’s long-term debt of
$113 million at December 31, 2007, which has also been included in the consolidated balance sheet. The VIE
has no other significant operations.