American Airlines 2008 Annual Report Download - page 70

67
6. Indebtedness (Continued)
American’s credit facility consists of a fully drawn $255 million senior secured revolving credit facility (fully drawn in
September 2008), and a $436 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, 2008, 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.
The Revolving Facility matures on June 17, 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. Securities meeting
certain rating criteria and with maturities within 18 months qualify for the Liquidity Covenant provisions.
The Credit Facility contains a covenant (the EBITDAR Covenant) requiring AMR to maintain specified ratios of
cash flow to fixed charges. In May 2008, AMR and American entered into an amendment to the Credit Facility
which waived compliance with the EBITDAR Covenant for periods ending on any date from and including June 30,
2008 through March 31, 2009, and which reduced the minimum ratios AMR is required to satisfy thereafter. The
required ratio will be 0.90 to 1.00 for the one quarter period ending June 30, 2009 and will increase to 1.15 to 1.00
for the four quarter period ending September 30, 2010.
AMR and American were in compliance with the Liquidity Covenant at December 31, 2008 and expect to be able
to comply with this covenant in the near-term. Given fuel prices that have been very high by historical standards
and the volatility of fuel prices and revenues, uncertainty in the capital markets and about other sources of funding,
and other factors, 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.
As of December 31, 2008, the Company had outstanding $318 million principal amount of its 4.50 percent senior
convertible notes due 2024 (the 4.50 Notes). On February 17, 2009, virtually all of the holders of the 4.50 Notes
exercised their elective put rights and the Company purchased and retired these notes at a price equal to 100
percent of their principal amount. Under the terms of the 4.50 Notes, the Company had the option to pay the
purchase price with cash, stock, or a combination of cash and stock, and the Company elected to pay for the 4.50
Notes solely with cash. The $318 million principal amount of the 4.50 Notes is recorded as Current maturities of
long-term debt as of December 31, 2008.