AMR urges court to back restructuring despite antitrust suit

An American Airlines passenger jet glides in under the moon as it lands at LaGuardia airport in New YorkNew York, August 28, 2012.

Credit: Reuters/Eduardo Munoz

By Nick Brown

NEW YORK | Fri Aug 23, 2013 4:43pm EDT

NEW YORK (Reuters) - American Airlines and its creditors' committee on Friday urged a bankruptcy judge to approve the airline's restructuring plan despite an antitrust challenge from the Department of Justice.

In court papers filed in U.S. Bankruptcy Court in Manhattan, American's bankrupt parent, AMR Corp (AAMRQ.PK), said failing to approve the restructuring would add "a destabilizing factor" to its proposal to merge with US Airways Group (LCC.N) and pay back creditors.

AMR's creditors' committee, in a separate filing, said refusal by Judge Sean Lane to give the plan his blessing could threaten creditor support for the plan, which includes AMR's unions and most of its creditors.

"While the DOJ enforcement action has unsettled creditor and stockholder expectations, deferring entry of the confirmation order ... would only exacerbate this uncertainty," the committee said.

The U.S. government also filed a brief on Friday, but did not, as might have been expected, urge Lane to not approve the restructuring plan. Instead the government, through U.S. Attorney Preet Bharara, said it took "no position as to whether" Lane should confirm the plan, but cited the "attendant risk that a confirmed plan may not be able to become effective for a considerable time, if at all."

AMR and US Airways agreed to merge in February in an $11 billion deal that would end AMR's bankruptcy and create the world's largest airline. Experts had expected the deal to enjoy a smooth ride through the regulatory process.

But on August 13, two days before the restructuring plan was to gain final court approval, the DOJ sought to block it, filing a lawsuit in Washington, D.C., alleging a stifling of competition that would harm consumers though higher fares.

Judge Lane, overseeing AMR's bankruptcy in New York, held off confirming the plan in the face of the DOJ's lawsuit, giving the parties until Friday to brief him on the best course of action.

AMR, in its court papers, stressed that the merger agreement, which Lane already approved, contains "a mechanism" to account for this very scenario. If the parties cannot obtain regulatory approval, the deal would eventually be terminated, AMR said.

Lane voiced hesitation to rubber-stamp a deal that might later change due to a settlement with the DOJ. But AMR said future changes to the plan, namely divestitures, are expressly required to go back before Lane for approval.

The creditors' committee said Lane's job is to make sure the plan meets standards under the bankruptcy law. Worrying about antitrust concerns is the DOJ's job.

"They are separate processes, before different courts, and on different schedules," the committee said.

If the Justice Department ultimately succeeds in blocking the merger, it would put AMR's restructuring back at square one, requiring it to forge new strategies for paying back creditors.

AMR shareholders, who stand to receive a 3.5 percent stake in the new entity under the merger, would likely be wiped out under any plan that excludes a merger, restructuring experts have said.

AMR's unions also support a merger. The Transport Workers Union, representing ground crew members, on Thursday filed court papers urging Lane to approve the deal.

But not everyone is in favor of Lane signing off. A group of plaintiffs in a separate antitrust lawsuit against US Airways filed a brief on Thursday in AMR's bankruptcy, saying the judge cannot under bankruptcy law confirm a plan that may prove not to be feasible. AMR appears "unable to articulate a ‘Plan B' which would resolve" antitrust risks, the group said in its filing.

Regardless of Lane's decision, the issue will come down to the sides' ability to resolve matters with the DOJ. Chapter 11 merger plans require both bankruptcy court approval and regulatory approval, and one does not impact the other.

At a hearing last week, Lane did not seem opposed to the restructuring plan on its face, his hesitation instead rooted in concerns that the deal he was being asked to approve might look different a few months down the road.

The DOJ antitrust suit will take months to resolve, and possibly longer if it goes to trial.

(Reporting by Nick Brown; Editing by Tim Dobbyn)

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Apple battles U.S. over scope of e-books injunction

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Apple battles U.S. over scope of e-books injunction

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Argentina loses U.S. appeal in $1.33 billion bondholder fight

By Nate Raymond and Jonathan Stempel

NEW YORK | Fri Aug 23, 2013 5:57pm EDT

NEW YORK (Reuters) - Argentina on Friday lost its appeal of a U.S. court order requiring it to pay $1.33 billion to hedge funds that refused to accept steep discounts when the nation restructured its debt.

The decision by the 2nd U.S. Circuit Court of Appeals in New York is the latest in a standoff between U.S. courts and the Argentine government that some investors fear could lead Argentina to default. The court stayed the decision pending review by the U.S. Supreme Court, giving Argentina a reprieve and nervous investors some relief.

While Argentina and its supporters have said a ruling against it could threaten future sovereign debt restructurings, the court said the case was an "exceptional one" that would have little impact on future transactions.

The court also had harsh words for the government of Argentine President Cristina Fernandez, which has called the hedge funds vultures and vowed not to pay them.

"Argentina's officials have publicly and repeatedly announced their intention to defy any rulings of this Court and the district court with which they disagree," Circuit Judge Barrington Parker wrote for a three-judge appeals panel.

Argentina did not comment on the decision on Friday. Economy Minister Hernan Lorenzino, asked about the decision during a trip to Chile, declined to comment.

The case stems from Argentina's $100 billion default on its debt in 2001. In two subsequent restructurings, in 2005 and 2010, creditors holding about 93 percent of the debt received 25 cents to 29 cents on the dollar.

Dissident bondholders led by the hedge funds NML Capital Ltd, which is a unit of Paul Singer's Elliott Management Corp, and Aurelius Capital Management refused to go along with the restructurings, arguing in court that they should be paid in full.

The case came to a head in November 2012, when U.S. District Judge Thomas Griesa in New York ordered Argentina to pay $1.33 billion into a court-controlled escrow account for the dissident bondholders.

He also ordered Argentina not to pay its other bondholders without making the payment, raising the prospect that Argentina could go into default.

The U.S. Supreme Court starts its new term in October and, if it agrees to take the case, may not rule until the next June.

Initially, investors in Argentine assets breathed a sigh of relief, but by the end of the day the Merval index .MERV of Argentine blue chips had closed lower.

For the longer term, investors signaled continued worries.

The cost to protect $10 million of Argentine sovereign debt against default for five years rose to $2.53 million annually from $2.28 million on Thursday, according to Markit. The cost suggests that many investors consider it likely the debt will go into default.

"The court's decision against Argentina is what we have been expecting," said Stuart Culverhouse, head of research at Exotix in London. "Market disappointment may be tempered though by the continuation of the stay with the Supreme Court appeal."

In the decision, Parker wrote that the court believed "it is equitable for one creditor to receive what it bargained for, and is therefore entitled to, even if other creditors, when receiving what they bargained for, do not receive the same thing.

"Because the district court's decision does no more than hold Argentina to its contractual obligation of equal treatment, we see no abuse of discretion," Parker added.

'NOT ABOUT THE LAW'

Friday's ruling rejected Argentina's arguments that the order to pay the holdout bondholders would unjustly hurt itself, participants in the bond payment system and the public.

It also rejected a claim by bondholders who agreed to the restructuring that Griesa's ruling would prevent them from being paid, based on Argentina's refusal to pay the holdouts.

"This type of harm - harm threatened to third parties by a party subject to an injunction who avows not to obey it - does not make an otherwise lawful injunction 'inequitable,'" Parker wrote.

Sean O'Shea, a lawyer for a group of bondholders including Gramercy Funds Management LLC who participated in the debt restructuring, said the opinion "unfortunately glosses over" the impact on his clients.

But Theodore Olson, a lawyer for NML, one of the dissident hedge funds, said the ruling "confirms that Argentina is not above the law."

At times, Friday's ruling reflected seeming frustration of the court with Argentina.

Parker said that in light of the "unusual nature of this litigation," the court had invited Argentina to propose an alternative payment formula that it was willing to commit. Argentina put forward "no productive proposals," he wrote.

The opinion quoted Jonathan Blackman, Argentina's lawyer, as even telling the court during arguments that the country "would not voluntarily obey" Griesa's injunctions if they were upheld.

NEXT STOP: SUPREME COURT

Argentina has already sought Supreme Court review of a ruling by the 2nd Circuit in October last year that Argentina had broken a contractual obligation to treat bondholders equally. A footnote to Friday's ruling suggested that the Supreme Court justices may wait instead for an appeal from the more recent decision.

That would delay the high court taking action on the appeal, although it could still potentially decide the case by the end of the court's next term, which starts in October and runs until June 2014.

Resolution of the case could be delayed further if the justices ask the Obama administration to weigh on whether they should hear the case. Then, the court might not rule on the case, if it decides to hear it, until the term that starts in October 2014.

In Friday's ruling, the 2nd Circuit also said that New York's status as a financial center depended on enforcing the ruling.

"We believe that the interest - one widely shared in the financial community - in maintaining New York's status as one of the foremost commercial centers is advanced by requiring debtors, including foreign debtors, to pay their debts," Parker wrote.

The case is NML Capital Ltd et al v. Republic of Argentina, 2nd U.S. Circuit Court of Appeals, No. 12-105.

(Additional reporting by Hugh Bronstein in Buenos Aires and Lawrence Hurley in Washington; Editing by Eddie Evans, Dan Grebler and Bernard Orr)

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Argentina markets give back gains after U.S. court stay

By Jorge Otaola and Walter Bianchi

BUENOS AIRES | Fri Aug 23, 2013 4:10pm EDT

BUENOS AIRES (Reuters) - Argentine markets initially rose on Friday after a U.S. appeals court put a hold on injunctions against the government in its legal battle with "holdout" bond investors, but stock and bond price gains were soon erased as concerns over the case persist.

The South American grains-exporting country lost its appeal of a judge's order requiring it to pay $1.33 billion to bondholders who refused to take part in two debt restructurings.

But the 2nd U.S. Circuit Court of Appeals in New York delayed implementing the decision pending a ruling by the U.S. Supreme Court, sparking a brief market rally in Buenos Aires.

"After the appeals court decision was analyzed, the realization set in that Argentina has only bought itself some time," a local stock broker told Reuters, asking not to be named. "So sellers started showing up to take profits."

The U.S. high court is likely to consider whether to hear the case in the fall. If the justices agree to hear the case, a ruling would be issued by the end of June.

"All this does is extend the fight to next year," said Rodolfo Rossi, an economist and former central bank president.

The MerVal .MERV blue-chip stock index ended the day 0.7 percent lower at 3,916.8 points after rising 1.53 percent earlier in the session.

The case still threatens to push Argentina toward a debt default if the country is finally ordered to pay holdouts the 100 cents on the dollar that they are demanding.

President Cristina Fernandez vows never to pay on those terms. She characterizes the holdouts as "vultures" out to profit on her country's catastrophic 2002 bond default.

The holdouts bought their Argentine bonds at steep discounts, refused to restructure the obligations and are demanding repayment at face value.

The international bond market seesawed on news of the appeals court decision, with Argentina's country risk premium initially tightening by 21 basis points and then widening by 43 basis points to 1,066 basis points over comparable U.S. Treasuries, according to JP Morgan's Emerging Markets Bond Index Plus.

The index as a whole was at a much tighter spread of 357 basis points over safe-haven U.S. Treasury paper, showing the market sees Argentina three times as likely as other emerging market countries to default.

If final judgment goes against Argentina and the government nevertheless refuses to pay the holdouts what they want, the courts could block it from paying holders who accepted big writedowns as part of debt restructurings in 2005 and 2010.

Missing interest payments to the holders of restructured bonds would put the country in technical default.

"The appeals court decision means the Argentine government can continue paying bondholders who participated in the restructurings at least until there is a final decision," said Ignacio Labaqui, who analyzes the country for emerging markets consultancy Medley Global Advisors.

The ruling nonetheless marked a potential victory over the long term for holdouts led by NML Capital Ltd, a unit of billionaire hedge fund manager Paul Singer's Elliott Management Corp, and Aurelius Capital Management.

U.S. Circuit Judge Barrington Parker, writing for the three-judge panel, said the court believed "it is equitable for one creditor to receive what it bargained for, and is therefore entitled to, even if other creditors, when receiving what they bargained for, do not receive the same thing."

(Additional reporting by Brad Haynes and Alejandro Lifschitz, writing by Hugh Bronstein; editing by Dan Grebler, Kenneth Barry and Andrew Hay)

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A sex scandal to beat Profumo: It's hard to keep up with this story of Swedish corruption, but you'll be glad you did

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Almost orbital, solar-powered drone offered as “atmospheric satellite”

A model of the Solara 50, Titan Aerospace's commercial "atmospheric satellite," hangs above the company's booth at the AUVSI Unmanned Systems conference booth.

WASHINGTON—At the AUVSI Unmanned Systems conference, New Mexico-based startup Titan Aerospace unveiled the company's prototypes for "atmospheric satellites"—autonomous unmanned aircraft powered purely by solar energy and capable of staying aloft at high altitude for up to five years. The first commercially manufactured long-endurance solar drone, the Solara 50, is under construction now and is expected to fly next year. A bigger drone, the Solara 60, will soon follow.

While solar-powered flight has been a reality since the early 1980s, Titan is the first company to work on commercially manufacturing solar-powered drones. And unlike some of the prototypes that have been flown by the established players in the aerospace and unmanned systems field, the Solara drones are based on well-worn technologies and simplicity in design.

If successful, Titan could change the economics of businesses that have previously depended on low-orbit satellites and allow for a persistent coverage closer to what satellites in geostationary orbit provide.

Solar-powered flight has been a reality since AeroVironment took the lessons from the human-powered aircraft Gossamer Albatross—which flew across the English Channel in 1979—and applied them in the Gossamer Penguin and Solar Challenger aircraft in the early 1980s. But complexity and durability issues have dogged most efforts to create the holy grail of solar aircraft—a drone that can stay aloft indefinitely.

AeroVironment has built a number of solar-powered aircraft for the government, including the Helios prototype—a giant drone with a wingspan of 247 feet powered by solar panels and hydrogen fuel cells. The Helios crashed off of Hawaii in 2003 when it suffered structural failure due to turbulence.

The early success of Helios partially inspired the Defense Advanced Research Projects Agency (DARPA) and Boeing's "Vulture" program in 2008, an effort to create a drone that could spend up to five years on station at 60,000 to 90,000 feet with a thousand-pound payload. Qinetq's Zephyr, one of the program's competitors, flew for 336 hours and 22 minutes, setting the endurance record for unmanned aircraft—but it set the record after DARPA cut the funding for the Boeing contract and reduced the program's scope to work on solar cells and energy storage systems.

That didn't end the Defense Department's appetite for long-flying drones. But the alternative paths chosen so far haven’t paid off. Another AeroVironment aircraft, the Global Observer—a purely hydrogen-powered drone with a 70-foot wingspan designed for week-long missions—crashed in 2011, resulting in the termination of the program by the Pentagon. Boeing has its own hydrogen-powered, long-endurance drone, the Phantom Eye, in development; so far its longest flight has been just over two hours.

A model of Boeing's Phantom Eye at Boeing's AUVSA conference booth.

Titan's aircraft plans are more modest and much more ambitious at the same time. Solara 50 will have a payload of just 70 pounds—though depending on the time of year and location of the flight, longer daylight hours could sustain flights with heavier payloads. The next design, the Solara 60, will carry up to 250 pounds. Instead of using hydrogen fuel cells, the Solara aircraft use batteries charged from solar panels to power flight at night and provide about 100 watts of power to the aircraft's payload, as well.

The Solara 50 has a 50 m (164 feet) wingspan. The upper surfaces of its wings and tail are packed with over 3,000 photovoltaic cells capable of generating up to 7 kilowatts. It is launched by catapult and can land (when it has to) by skidding on its Kevlar-coated underside. Unlike the giant flying-wing configurations of the Helios and Zephyr, which had large numbers of propellers, the Solara has a single, high-efficiency motor.

In theory, a solar-powered drone capable of withstanding long flights at high altitude—in what Titan executives call the "sweet spot" in the Earth's atmosphere between 60,000 and 70,000 feet, above nearly all weather patterns in a zone where winds are typically less than 5 knots (5.75 miles/hour)—would be able to perform tasks usually reserved for satellites at a much lower cost.

For example, during a presentation by Titan at AVUSA, a company spokesperson compared using a satellite for multispectral Earth imagery—say, like Landsat's—to using an atmospheric satellite. A drone could be put up quickly, for much less initial capital. At the same time, it would provide targeted imagery at a cost of less than $5 per square kilometer—versus $35 per square kilometer from a satellite—while still offering the large area of coverage of a satellite.

Enlarge / Artist's rendering of Solara 50 at high altitude. Enlarge / The coverage area of a Solara 50, superimposed over New York.

As a communications relay, the Solara offers about an 18-mile radius of coverage—easily covering all of New York City's five boroughs, as shown in the map above. A "constellation" of Solara craft could create a persistent communication network for disaster relief efforts or could provide long-term services.

Titan already has customer reservations for the first three of its Solara drones, two of which are intended to serve as communications relays (though the customer has not been identified). The first will be delivered in February, with manufacturing ramping up for monthly delivery starting in April.

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