AMR bonds trade quietly as bankruptcy hearing looms

By Paul Deckelman

New York, Aug. 15 - AMR Corp.'s bonds - the subject of intense activity the last two days in the wake of the federal government's decision to oppose the troubled airline operator's proposed merger with industry rival US Airways Group, Inc. - were much quieter Thursday morning ahead of a bankruptcy court hearing on its plan of reorganization.

AMR's most active issue - its 6¼% notes due 2014 - was quoted by a market source as trading in a 92½ to 95 bid context at mid-morning, up from Wednesday's close around 89 to 90, on volume of over $6 million. That was well down from the activity level seen on Wednesday, when mid-morning volume had already topped the $30 million mark.

On Wednesday, those bonds traded down around 8 or 9 points for most of the day from Tuesday's close at 103 bid, before sliding further to around 90 - a 13-point loss on the day - on a few large late trades, with total volume for the session of over $70 million.

The Fort Worth, Texas-based airline operator's bonds had begun losing altitude on Tuesday, when almost $50 million had traded as the bonds swooned to about 103 bid from the opening levels above 116 they had held before news of the merger's opposition. In a generally unexpected announcement, the U.S. Justice Department and several state attorneys general filed suit in the federal courts to block the planned $11 billion merger with US Airways Group on antitrust grounds.

AMR's over-the-counter traded shares were down 14 cents, or 5.11%, at $2.60, at 10:45 a.m. ET on volume of 7.6 million shares, around 10% below the norm. On Wednesday, the stock closed down 43 cents, or 13.56%, at $2.74. Volume of 78.4 million shares was nearly 10 times the usual turnover. That continued the share's nosedive that began after the Justice Department's announcement on Tuesday, when they plummeted by $2.70, or 45.9%.

The activity in the bonds and shares fell off from the heavy pace seen on Tuesday and Wednesday as investors awaited the latest legal developments in the case.

A hearing on AMR's proposed Chapter 11 reorganization plan was scheduled to take place Thursday before the U.S. Bankruptcy Court for the Southern District of New York in Manhattan, where the company sought protection from bondholders and other creditors via a filing on Nov. 29, 2011.

The plan is heavily dependent upon AMR - the parent of American Airlines, currently the fourth-largest airline carrier in both the United States and the world, in terms of total passenger traffic - being allowed to merge with Tempe, Ariz.-based US Airways Group, whose eponymous carrier US Airways is the fifth-biggest U.S. carrier.

The combined entity would vault to the top of both lists, ahead of larger rivals Delta Air Lines, United Airlines and Southwest Airlines.

But in its Tuesday filing with the federal district court in Washington, the Justice Department warned that letting the transaction go though "would substantially lessen competition for commercial air travel in local markets throughout the United States and result in passengers paying higher air fares and receiving less service."

For one thing, it noted that combining the two companies would end competition on thousands of routes between US Airways and American.

Besides the federal government, the attorneys general from Arizona, Texas, Florida, Pennsylvania, Tennessee and Virginia oppose the merger, as well as the District of Columbia.

Late news reports said that the federal jurist overseeing the reorganization case, U.S. Bankruptcy judge Sean Lane, asked lawyers for the airlines to submit briefs on the impact of the Justice Department's antitrust lawsuit before he proceeded with the plan-confirmation hearing.

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