American Airlines 2010 Annual Report Download - page 71

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68
6. Indebtedness (Continued)
To effect the Advance Purchase, American and Citibank entered into an Amended and Restated AAdvantage
Participation (as so amended and restated, the Amended Participation Agreement). Under the Amended
Participation Agreement, American agreed that it would apply in equal monthly installments, over a five year
period beginning on January 1, 2012, the Advance Purchase Miles to Citibank cardholders’ AAdvantage
accounts.
Pursuant to the Advance Purchase, Citibank has been granted a first-priority lien in certain of American’s
AAdvantage program assets, and a lien in certain of American’s Heathrow and Narita routes and slots that would
be subordinated to any subsequent first lien. Commencing on December 31, 2011, American has the right to
repurchase, without premium or penalty, any or all of the Advance Purchase Miles that have not then been posted
to Citibank cardholders’ accounts. American is also obligated, in certain circumstances (including certain specified
termination events under the Amended Participation Agreement, certain cross defaults and cross acceleration
events, and if any Advance Purchase Miles remain at the end of the term) to repurchase for cash all of the
Advance Purchase Miles that have not then been used by Citibank.
The Amended Participation Agreement includes provisions that grant Citibank the right to use Advance Purchase
Miles on an accelerated basis under specified circumstances. American also has the right under certain
circumstances to release, or substitute other comparable collateral for, the Heathrow and Narita route and slot
related collateral.
During 2009, American closed a $520 million Pass Through Trust Certificates (the Certificates) financing covering
four Boeing 777-200ER aircraft owned by American and 16 of American’s Boeing 737-800 deliveries. Equipment
notes underlying the Certificates bear interest at 10.375 percent per annum and principal and interest on the
notes are payable in semi-annual installments with a balloon payment at maturity in 2019. Approximately $200
million of the proceeds from the sale of the Certificates were used by American during 2010 for the delivery and
financing of Boeing 737-800 aircraft.
Also in 2009, American entered into a sale leaseback financing transaction with GECAS for Boeing 737-800
aircraft (the 2009 Sale Leaseback) delivered in 2010 and certain Boeing 737-800 aircraft deliveries scheduled to
be delivered in 2011 for an aggregate commitment of $1.6 billion. The 2009 sale leaseback is subject to certain
terms and conditions, including a condition to the effect that, at the time of entering into the sale and leaseback of
a particular Boeing 737-800 aircraft, American has at least a certain amount of unrestricted cash and short term
investments.
At December 31, 2010, the Company had outstanding $460 million principal amount of its 6.25 percent senior
convertible notes due 2014. Each note is convertible by holders into shares of AMR common stock at an initial
conversion rate of 101.0101 shares per $1,000 principal amount of notes (which represents an equivalent initial
conversion price of approximately $9.90 per share), subject to adjustment upon the occurrence of certain events,
at any time prior to the close of business on the business day immediately preceding the maturity date of the
notes. The Company must pay the conversion price of the notes in common stock. If the holders of the notes do
not convert prior to maturity, the Company will retire the debt in cash. These notes are guaranteed by American.
Certain of the Company’s debt financing agreements contain loan to value ratio covenants and require the
Company to periodically appraise the collateral. Pursuant to such agreements, if the loan to value ratio exceeds a
specified threshold, we may be required to subject additional qualifying collateral (which in some cases may
include cash collateral) or, in the alternative, to pay down such financing, in whole or in part, with premium (if
any).
Almost all of the Company’s aircraft assets (including aircraft eligible for the benefits of Section 1110 of the U.S.
Bankruptcy Code) are encumbered.
Cash payments for interest, net of capitalized interest, were $735 million, $631 million and $685 million for 2010,
2009 and 2008, respectively.