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AMR avoids investigation into $2.26 billion debt deals

By Nick Brown

NEW YORK (Reuters) - Hedge fund Marathon Asset Management has withdrawn a request for an independent investigator to examine the books of American Airlines, a unit of bankrupt AMR Corp, lawyers for the companies said at a hearing on Thursday.

The move came after AMR agreed to preserve potential clawback claims relating to debt deals, struck between Marathon and AMR, that left American Airlines with $2.26 billion of debt.

AMR entered bankruptcy last November, and is considering its options for emerging either as a standalone firm or to merge with smaller competitor US Airways Group, which is making an aggressive takeover push.

Marathon, which has said it holds "well over" $100 million of AMR debt, last month sought an examiner to probe intercompany transactions consummated in the weeks before AMR's Chapter 11 filing. The deals transferred about $2.26 billion of debt from AMR's American Eagle unit to American Airlines.

Marathon said in court papers it was concerned that potential legal claims to claw the money back would be barred under the language of a separate settlement, under which AMR refinanced about 200 of its aircraft.

AMR dismissed that argument in court filings as an "obvious litigation tactic." But on Thursday, it agreed to expressly preserve such claims in exchange for Marathon dropping its request for an examiner, AMR attorney Richard Hahn said at the hearing in federal bankruptcy court in White Plains, N.Y..

The resolution also allows AMR to move forward with the underlying aircraft refinancing deal, which it says will save about $670 million on planes manufactured by Embraer.

Marathon has been taking a more vocal role in AMR's bankruptcy, adding another layer of complexity to the already multi-faceted case.

The examiner request was Marathon's second attempt to flex its muscles as a significant creditor, coming days after it sent a letter to AMR Chief Executive Tom Horton demanding more transparency about the airline's restructuring efforts.

It remains unclear whether Marathon supports a standalone restructuring or a US Airways merger, or whether Marathon would be in a position to finance an independent exit from bankruptcy for AMR. But as a large debtholder, the hedge fund could be in a position to influence either scenario by objecting to plans it does not support.

US Airways would like to acquire AMR out of bankruptcy, while a group of debtholders including JPMorgan Chase & Co has expressed interest in financing a standalone exit.

AMR received court permission at Thursday's hearing to extend for 30 days, through January 28, its unilateral control of its bankruptcy exit plan. That means US Airways cannot propose its own takeover plan until that date, and that any merger plan before that date would have to be a cooperative effort with AMR.

Labor issues will also affect AMR's ability to emerge from bankruptcy independently.

High labor costs were a driving force in the company's bankruptcy filing, and while the airline has reached new collective bargaining deals with its flight attendants' and ground workers' unions, it remains at odds with its pilots.

That could spook investors assessing the company's stability going forward, and AMR's creditors' committee has said labor peace with pilots is a top priority.

While AMR and its pilots continue to negotiate, the pilots have said they support a merger with US Airways. They have also said they already have a tentative labor deal in place with US Airways.

The case is In re AMR Corp et al, U.S. Bankruptcy Court, Southern District of New York, No. 11-15463.

(Editing by Bernadette Baum)

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