A group of bondholders at American Airlines who do not have a seat on the creditors committee in the airline’s bankruptcy say they want a new Board of Directors if the airline emerges as a standalone entity.

A letter detailing their position was posted on the airline’s pilots union website, presumably to help convince the pilots to vote for a new labor agreement that’s been put forward. The idea being that even if they want to spite current management, don’t worry about it, forces are at work to remove management. Doesn’t seem like especially strong forces to me, but whatever brings labor peace at the airline I suppose.

The bondholders’ letter says,

“This letter provides APA with the benefit of a written commitment by the ad hoc group stating it will not agree to a plan of reorganization that does not otherwise include a new independent AMR board of directors and that key stakeholders, including labor, will be a part of that selection process,” the union told its members.

Of course this group doesn’t need to agree to anything, as they have no official voice in the bankruptcy proceeding.

And it can be read many ways, a ‘new’ board could be constituted to the extent only one board member changes. And a new independent board could refer only to a change in outside directors and not management.

So while this story is currently getting a decent amount of play, it really seems there’s nothing here at all.

Update: By trumpeting the commitment from the group of creditors without a current seat at the table, the pilots union signals either (1) that their communications in general are pretty hyperbolic and never credible, or (2) that they’re desperate in this instance. I suspect some element of both to be true. They’re desperate because the last agreement sent to the membership was voted down, with union leadership tossed. The current leadership doesn’t want that to happen to them.

My worry is that they’re not just irrationally desperate, that their desperation is based on their realistic view of the current chances of passage. Though I suspect that the agreement will pass, and would pass without desperate attempts. We can hope, anyway.

  1. Bankruptcy Guy said,

    Not being a member of the creditors’ committee DOES NOT mean that these bondholders don’t have a say in the chapter 11 cases. If they hold claims under their bonds, then they are parties in interest with standing and a voice. Period. Not being on the committee just means that they’re paying their own attorneys’ fees, and not forcing the company to pay for them. Not at all uncommon for investors in that position to actively participate in a case.

  2. Gary said,

    @Bankruptcy Guy – sure they can participate but the portrayal of the letter from this one group by the pilots is completely at odds with reality. They’re pitching it to their membership as though this group’s position is dispositive as to the outcome.

  3. bluto said,

    @Gary – I think Bankruptcy Guy is just clarifying for you that being on the creditor’s committee doesn’t really hold any significance, and that the fact that this group isn’t on the committee does not mean they don’t have a significant voice in the outcome. You’ve italicized and emphasized in the post that the group’s not on the committee, and seemed to conclude that this group’s letter is therefore somewhat frivolous. An ad hoc bondholder group like this one in theory could accumulate 1/3 of the outstanding bonds and effectively have final say over the ultimate plan of reorg (because any plan requires 1/3 of the impaired creditor class to confirm) *without ever being on the committee*. That’s not a purely theoretical example because I have seen it before.

    The only real advantage that the creditor’s committee has is that its fees are paid by the debtor. And, in the AMR case, even that is not a distinction because the Bloomberg article that you linked to says that AMR is paying the group’s fees anyway, which is another sign that AMR recognizes this is a key bondholder group.

  4. bluto said,

    >And it can be read many ways, a ‘new’ board could be constituted to the extent only one board member changes.

    I don’t think that’s the bondholders’ plan. The article quotes their adviser as saying the group wants to have a new AMR board “of mostly individuals without prior affiliation with the company.”

    One more point about the significance of this group: Setting aside the lease claims and the PBGC’s pension claims, it looks like there was $2.67 bil of payables and unsecured debt subject to compromise. This group says they have $885 mil of debt, which is 33.15% of the class. This is akin to Icahn showing up with a letter saying he owns 51% of your stock. If he wants to change the board, that’s probably what’s going to eventually happen.

  5. Gary said,

    I’m just saying that the commitment allows them plenty of opportunity to back out.

  6. bluto said,

    After reading the letters and some more of the history here, it looks like this bondholder group isn’t necessarily agitating for change or that they are particularly unhappy with present management. It seems like the APA sought a letter from this key bondholder group to get assurance that the APA, as holders of a 13.5% equity interest in the newco, would have input on the the selection of the Board. I read the letter as the bondholders merely acknowledging that a new board would be selected after a plan is confirmed and the New AMR emerges, as is customary. The APA probably sought this letter to (1) get some assurance that the bondholders, who will likely have an equity interest that dwarfs the APA’s, would not unilaterally (re-)appoint board members without input from other shareholders including the APA, and (2) spin this letter to union members to say that ‘a vote for this agreement is a vote to replace the board’.

  7. Gary said,

    @bluto – the APA is using this to sell its members on a contract, implying that they get to toss current management if they approve the contract. They don’t, and that hasn’t really been promised, but the APA is implying it… they are giving their members bad information about what this signifies.

  8. Jim L said,

    If the APA does not approve, do they really think US Airways will be the savior? According to this article, http://www.reuters.com/article/2012/11/29/us-airlines-labor-idUSBRE8AS00J20121129 which references the APA, sys the following: “The U.S. Airline Pilots Association says US Airways’ 5,000 pilots earn as much as 50 percent less than the industry average, since they are also still working under bankruptcy-era contracts. That union is working with federal mediators on a timetable to resume contract talks.”

    If US Airways is courting the AA pilots, what will happen when you have two groups doing the same job at vastly different pay?

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