In Re AMR Corporation
United States Court of Appeals for the Second Circuit
730 F.3d 88 (2013)
AMR Corporation (debtor), parent to American Airlines (American), filed a voluntary bankruptcy petition to reorganize in 2011. U.S. Bank National Trust Association (US Bank) held notes as trustee that American used to finance aircraft. The indenture and security agreements required American to pay a make-whole payment if it redeemed the notes before maturity, only if the redemption was voluntary. If the debt automatically accelerated because of a default, the indentures specified that “[n]o Make-Whole Amount shall be payable.” The indentures defined filing a voluntary bankruptcy petition or a voluntary petition “seeking reorganization, liquidation, or other relief as a debtor” as an “Event of Default” that triggered automatic acceleration. The trustee had discretion over whether to accelerate if other types of default events occurred, but not a voluntary bankruptcy. A month after filing, American elected under Bankruptcy Code § 1110 to agree to perform its obligations to creditors with a secured interest in its aircraft and cure any default within a certain time frame to receive protection under the automatic stay. Effectively that allowed American to keep flying its planes instead of having them repossessed. American made its regular payments for nine months, then requested authorization to obtain $1.5 billion in postpetition financing to repay the notes without paying a make-whole amount. US Bank objected, insisting that American pay the make-whole amount under the indentures’ voluntary-redemption provisions. The court nonetheless approved the new financing and repayment without a make-whole amount. US Bank appealed.
Rule of Law
Holding and Reasoning (Livingston, J.)
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