AA Bankruptcy Court Update , 7-26-2013

US Bankruptcy CourtThe Court’s July 25, 2013 hearing lasted approximately three hours.

Reserves Motion. The Debtors filed a motion seeking to establish the maximum amount of disputed claims to be utilized to establish a reserve for disputed claims under the proposed plan of reorganization and to establish procedures for the objection, estimation, and resolution of such claims. The Debtors argue that the relief they seek should be granted to balance the interests of holders of “single DIP general unsecured claims” with the interests of creditors holding disputed claims and that their proposed reserve is exceedingly conservative and provides a cushion of $220 million over the Debtors’ high-end estimate of $113 million in aggregate Disputed Claims that will ultimately be allowed. Single DIP general unsecured claims are claims held by general unsecured creditors against only one of the Debtor entities (as opposed to a claim asserted against one or more of the Debtor entities).

Approximately 15 objections and 3 reservations of rights were filed, the majority of which were resolved prior to the hearing as noted by the Debtors on the record. The Section 1114 Retiree Committee (the “Retiree Committee”) filed an objection an argued that, contrary to the Debtors’ view, it could have a claim and should be protected by the reserve. At the hearing, the Debtors reported that they are negotiating with the Retiree Committee and there was no argument on this objection.

The Court addressed the objections of certain individuals and explained that the claims reserve motion is not an effort by the Debtors to deny their claims (which if it happened would happen by a separate motion) but only an effort to set the Reserve and the amount of the Reserve.

The Debtors stated that there are $2.5 billion of general unsecured claims and, after some adjustment since the motion was filed, an approximately $465 million reserve, which totals $2.955 billion, satisfying the condition of the Plan that claims not exceed $3.2 billion. The Committee supported the process used by the Debtors and believes that the estimates reasonable. The Court expressed concern that the reserve is not high enough and asked what the harm would be if the reserve was increased so that when added to the allowed claims, the total would equal the full $3.2 billion. The Court ultimately requested that the Debtors supplement their papers to address the issues raised by the Court, noting that it would enter an order today if the reserve was increased. The Debtors did not offer to increase the reserve but stated that they would advise Chambers as to how they plan to proceed.

Omnibus Objections to Claims. Separately, the Court heard and granted several claim objection motions filed by the Debtors. While some responses were filed with respect to the objections that went forward, the Court was satisfied with the representations made by the Debtors and ultimately granted the objections.

Uncontested Applications. Finally, the Court granted the following uncontested motions:

(i) motion for authority to expand the retention of Winstead PC including with regard to representation of the Debtors in employee health and welfare benefits issues;

(ii) motion for authority to employ and retain Addleshaw Goddard LLP as special counsel to the debtors to provide legal services related to UK law in connection with the restructuring of the Debtors and the merger with US Airways;

(iii) motion for entry of an order authorizing assumption of unexpired nonresidential real estate in connection with Chicago O’Hare;

(iv) motion of the Debtors for entry of an order authorizing the Debtors to enter into sale leaseback transactions for aircraft purchasers; and

(v) motion for entry of an order authorizing the Debtors to file the sale-leaseback motion under seal.

The next scheduled hearing is the confirmation hearing on August 15, 2013 at 10:00 a.m. Objections to confirmation of the plan are due on or before July 30, 2013 at 4:00 p.m. Ballots must be received by the balloting agent by July 29, 2013 at 5:00 p.m.

Lowenstein Sandler LLP
Sharon L. Levine
Paul Kizel
S. Jason Teele