U.S. Bank Trust National Ass'n v. American Airlines, Inc. (In re AMR Corp.)
485 B.R. 279
Bankr. S.D.N.Y.2013Background
- Debtors filed voluntary Chapter 11 petitions on November 29, 2011.
- American Airlines was party to three prepetition financings secured by aircraft (two EETCs and one Secured Notes).
- Indentures provide automatic acceleration on bankruptcy default (4.01(g)) and carve out Make-Whole payment after acceleration (4.02(a)(i) but with no Make-Whole where bankruptcy occurs).
- Section 1110 order allowed Debtors to elect to perform under aircraft financings and stay protections were extended for 60 days; Debtors filed 1110 elections for all three financings.
- Debtors seek $1.5 billion new secured financing and to use proceeds to repay prepetition indebtedness, arguing Make-Whole is not due due to automatic acceleration on bankruptcy.
- U.S. Bank objects, contending Make-Whole is due; court ultimately holds Make-Whole is not required and denies lift-stay motions.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether Make-Whole is due after bankruptcy-accelerated debt | Debtors: acceleration occurs automatically on bankruptcy; Make-Whole not due. | U.S. Bank: Make-Whole must be paid despite acceleration. | Make-Whole not payable after bankruptcy acceleration. |
| Whether acceleration is self-operative under the Indentures | Indentures expressly provide automatic acceleration on bankruptcy without requiring lender action. | Acceleration is not self-executing in some contexts; must examine 4.02 and related sections. | Acceleration is automatic upon bankruptcy per 4.01(g); no lender action needed. |
| Whether Section 4.02(d) rescission/deceleration is available post-acceleration | Deceleration could be invoked if conditions are met and would not violate stay. | Deceleration would violate the automatic stay. | Deceleration is barred by the automatic stay. |
| Whether Section 1110 elections affect Make-Whole and stay status | 1110 elections permit continued stay while Debtors perform; not a reinstatement of debt or require Make-Whole. | 1110 could complicate Make-Whole entitlement. | 1110 protections do not force Make-Whole payment and remain within contract terms; stay remains in place. |
Key Cases Cited
- Premier Entm’t Biloxi LLC v. U.S. Bank Nat’l Ass’n (In re Premier Entm’t Biloxi LLC), 445 B.R. 582 (Bankr.S.D. Miss. 2010) (automatic acceleration clauses self-operate when bankruptcy is an event of default; policy concerns addressed)
- In re Solutia, Inc., 379 B.R. 473 (Bankr.S.D.N.Y. 2007) (deceleration after automatic acceleration violates the stay)
- In re General Growth Props., Inc., 451 B.R. 323 (Bankr.S.D.N.Y. 2011) (analysis of ipso facto clauses and bankruptcy-default interpretations)
- In re LHD Realty Corp., 726 F.2d 327 (7th Cir. 1984) (distinguishes lender acceleration rights and post-acceleration consequences)
- In re United Merchs. & Mfr., Inc., 674 F.2d 134 (2d Cir. 1982) (pprocedural considerations on acceleration and premium implications in restructuring)
- In re Calpine Corp., 2010 WL 3835200 (S.D.N.Y. 2010) (bankruptcy default accelerates debt; no premium unless contract provides)
- In re Solutia, Inc. (duplicate for emphasis), 379 B.R. 473 (Bankr.S.D.N.Y. 2007) (discusses post-acceleration rights and premiums under indentures)