The Debtors recently filed an application seeking to employ Rothschild, Inc. (“Rothschild”) as financial advisor and investment banker in accordance with the terms and conditions of an engagement letter dated October 17, 2011. According to the application, Rothschild has more than forty (40) offices in more than thirty (30) countries, and its professionals have extensive experience advising companies in the airline industry on restructuring and strategic advisory matters. For example, Rothschild’s professionals provided financial advisory services to UAL Corporation in connection with its chapter 11 restructuring, to MBIA in connection with the chapter 11 restructuring of US Airways, and advised companies in connection with labor and pension issues, including the Pension Benefit Guarantee Corporation with respect to the bankruptcy of Northwest Airlines.
Rothschild’s proposed services include the following:
- identify and/or initiate potential Restructuring Transactions (as defined in the engagement letter);• review and analyze the Debtors’ assets and the operating and financial strategies of the Debtors;
- review and analyze the business plans and financial projections prepared by the Debtors including, but not limited to, testing assumptions and comparing those assumptions to historical Debtor and industry trends;
- evaluate the Debtors’ debt capacity in light of their projected cash flows and assist in the determination of an appropriate capital structure for the Debtors;
- assist the Debtors and their other professionals in reviewing the terms of any proposed Restructuring Transaction, in responding thereto and, if directed, in evaluating alternative proposals for a Restructuring Transaction;
- determine a range of values for the Debtors and any securities that the Debtors offer or propose to offer in connection with a Restructuring Transaction;
- review and analyze any proposals the Debtors receive from third parties in connection with a Restructuring Transaction, including, without limitation, any proposals for mergers, acquisitions or other business combination transactions or for debtor-in-possession financing, as appropriate;
- advise the Debtors on the risks and benefits of considering a Restructuring Transaction with respect to the Debtors’ intermediate and long-term business prospects and strategic alternatives to maximize the business enterprise value of the Debtors;
- assist or participate in negotiations with the parties in interest, including, without limitation, any current or prospective creditors of, holders of equity in, or claimants against the Debtors and/or their respective representatives in connection with a Restructuring Transaction;
- advise the Debtors with respect to, and attend, meetings of the Debtors’ Board of Directors, creditor groups, official constituencies and other interested parties, as necessary;
- as requested by the Debtors, participate in hearings before this Court and provide relevant testimony with respect to the matters described in the Engagement Letter and issues arising in connection with any proposed Plan; and
- render (but only to the extent permitted by further orders of this Court) such other financial advisory and investment banking services customary for similar engagements as agreed upon by Rothschild and the Debtors.
In exchange for its services, Rothschild will be compensated in accordance with the terms of the engagement letter, which provides a compensation structure (the “Fee Structure”) in relevant part as follows:
(a) Monthly Fees: Whether or not a Restructuring Transaction is proposed or consummated, an advisory fee (the “Monthly Fee”) of $200,000 per month.
(b) Completion Fee: A fee (“Completion Fee”) of $15 million, payable upon the earlier of (i) the confirmation and effectiveness of a Plan and (ii) the closing of another Restructuring Transaction.
(c) New Capital Fee: A new capital fee (“New Capital Fee”) equal to (i) 1% of any senior secured debt raised, (ii) 3% of the face amount of any junior secured or senior or subordinated unsecured debt (including any convertible debt) raised, and (iii) 5% of any equity or hybrid capital raised (each, a “New Capital Raise”), in each case, in which Rothschild is asked to become substantively involved as an advisor, provided that no New Capital Fee will be due and payable (i) with respect to any debtor-in-possession financing arrangements or (ii) from an Acquirer or an entity having expressed interest in becoming an Acquirer in connection with the consummation of a Restructuring Transaction which is intended to occur simultaneously with or within a reasonable period after the closing of such New Capital Raise.
(d) Fee Credits: Rothschild will credit against the Completion Fee: (i) 50% of any New Capital Fees paid and (ii) to the extent not otherwise applied against the fees and expenses of Rothschild under the terms of the Engagement Letter, the Retainer, provided that the sum of such credits will not exceed the Completion Fee. Note that Rothschild received a $400,000 prepetition retainer, of which $82,729.43 will be applied to satisfy costs associated with services provided to the Debtors prepetition.
(e) Reimbursement of Expenses: The Debtors will reimburse Rothschild for its reasonable expenses incurred in connection with the performance of Rothschild’s activities under the Engagement Letter, including, without limitation, the reasonable fees, disbursements and other charges of Rothschild’s counsel.
Rothschild intends to file interim and final fee applications with the Court for the allowance of compensation for services rendered and reimbursement of expenses.
The engagement letter also provides for certain indemnification provisions. In short, the Debtors will indemnify and hold Rothschild harmless against liabilities arising out of or in connection with its retention by the Debtors, except for any liability for losses, claims, damages, or liabilities incurred by the Debtors that are finally judicially determined by a court of competent jurisdiction to have primarily resulted from bad faith, self-dealing, breach of fiduciary duty (if any) as a result of gross negligence, willful misconduct or fraud.
The hearing on the application is scheduled for January 27, 2012 at 10:00 a.m. (Eastern). Objections are due by January 20, 2012 at 4:00 p.m. (Eastern).
Limited Objection of U.S. Bank Trust National Association to Section 1110 Election
U.S. Bank Trust National Association (“U.S. Bank”), as trustee, filed a limited objection to election pursuant to section 1100(a) of the Bankruptcy Code with respect to American Airlines 2009-1A EETC Aircraft Equipment. According to the objection, U.S. Bank serves as a trustee and/or agent under the terms of certain agreements with American Airlines, Inc. On December 23, 2011, American Airlines Inc. filed its Notice of Election Pursuant to Section 1110(a) of the Bankruptcy Code with Respect to American Airlines 2009-1A EETC Aircraft Equipment (the “Election”).
U.S. Bank asserts that it filed the limited objection to the Election in order preserve all its rights with respect to payments due under the terms of all the relevant agreements, as well as to preserve its rights with respect to other rights under the terms of the relevant agreements, including its rights to demand appropriate performance of all obligations with respect to information and records requested with respect to each of the aircraft and assurance of appropriate adequate protection.
U.S. Bank also reserves its rights with respect to all non-monetary defaults that might exist under the terms of the relevant aircraft agreements, including but not limited to, obligations of the Debtors to provide information with respect to the aircraft. U.S. Bank has requested aircraft related information from the Debtors pursuant to the terms of the relevant aircraft agreements and has requested that the Debtors demonstrate how they intend to adequately protect the interests of U.S. Bank in the aircraft. According to the objection, U.S. Bank is still awaiting a response to these requests. U.S. Bank reserves its rights with respect to such requests and any default that a review of this information might indicate with respect to the 2009-1A Aircraft.
Letter of Chris McCann
Chris McCann submitted a letter to the Court addressed to Tom Horton, CEO of American Airlines, and Bankruptcy Judge Lane. According to the letter, Mr. McCann is a retiree who worked for American Airlines 36 years before retiring three years ago. By the letter, Mr. McCann states his concern for the continuation of pension and medical benefits, and asserts that retirees entitled to pension benefits do not have a voice on the Unsecured Creditor’s Committee. Mr. McCann asserts that a 35-40% reduction for fixed income individuals in unsustainable, and requests that the Court consider addressing pension obligations individually when considering the welfare of current retirees.
Lowenstein Sandler PC
Sharon L. Levine, Esq.
S. Jason Teele, Esq.
Nicole Stefanelli, Esq.