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Professionally licensed but commenting as an anonymous individual investor for informational and entertainment purposes only. Experienced in the industry since 1997 with an education in finance and economics. Prior to financial services industry, was a veteran of the armed services experienced... More
  • American Airlines Follow-Up 23 comments
    Dec 12, 2013 6:01 AM | about stocks: AAL, AAL, AAL

    Wow, what a fire storm I started with my article on the share distribution related to the American Airlines and United Airline merger here. Within minutes of publishing I had messages demanding a retraction, insulting my intelligence, and even questioning my birth legitimacy. Talk about shooting the messenger.

    This follow up will first clarify my original assumptions and highlight my lack of prudent judgment associated with those assumptions, relate additional information related to subsequent distributions certain stakeholders may receive, and highlight the remaining risks to the mid-term price of America Airlines Group (NASDAQ:AAL).

    Prior Assumptions

    This past Monday, December 9th marked the closing of the merger and therefore the conversion of United Airlines (LCC) and first distribution to AMR (AAMRQ) stakeholders. For common shareholders, conversion was 1:1 for LLC and 1 for 0.0665 AAMRQ.

    Because there had been no trading history on the new common for American Airlines Group , and because the conversion rate was 1:1 for LCC, I reasonably assumed that the price of AAL would seek the prior fair value of LCC, near the $22.55 dollar level. I also assumed that stakeholders, specifically employees and creditors would begin to liquidate their common shares after settlement, December 12th. Now, since those stakeholders (employees and creditors) were to be issued the vast majority of the new shares (more than 70%), selling pressure would further drive the per share price well below fair value and into oversold territory. The assumption would be that share price would drop below $20, into the mid to upper teens. Were that to happen, the probability of additional distributions to holders of the old common stock were very low.

    Please note, there is no question about the additional distribution to the remaining stakeholders (employees and creditors). As a matter of fact, it is those very distributions that necessitates the withholding of shares and predicates future distribution based on the trading history of AAL at the 30, 60, 90, and 120 day mark.

    Determinants of the Distribution

    Each of the stakeholders associate with the old AMR, with the exception of common equity holders have a known amount they are to receive. With respect to Employees, or Labor, they will receive a fixed percentage of outstanding stock; 23.6%. With respect to creditors, they will receive a fixed dollar value of common stock based on average selling price of AAL to satisfy their authorized claims. A summary of unsecured claims is listed below.

    (AMR unsecured)

    (American unsecured)

    (American unsecured)

    In order to satisfy all the claims against AMR and American, the bankruptcy court has ordered that shares be withheld from the initial distribution. This is the pool of assets that will be used to pay creditors and compensate non-equity stakeholders throughout the settlement period. Since creditors are to be compensated with new equity, the higher the stock price, the fewer the number of shares that will be needed to satisfy the claim. Meanwhile, over the course of the settlement period, additional distributions will need to be made to employees and the unions to maintain their percentage of equity ownership established by the court order. Over time, these claims will reduce the pool of equity until everything has been satisfied.

    Whatever is left over goes to common shareholder of the old AMR Corporation. At the current price (over $26 per share) that could result in a considerable gain relative to last Friday's closing price. Were the share price to drop significantly (below $20 per share), that could result in a considerable loss.

    Revised Outlook and Summary

    Provided shares of American Airline Group remain high enough to satisfy creditors' claims, old shareholders of AAMRQ can expect to receive additional distributions of new common shares. These distributions may occur at the 30, 60, 90, and/or 120 day marks. Now that the new shares are trading, I freely admit that by prior fears have somewhat abated. I erroneously presumed that the probability of future distributions was minimal, but given the prior few days trading history, it is looking more and more likely that additional distributions will happen, and may end up being significantly more than what the market was anticipating last week.

    However, even though my pessimistic outlook from Monday is looking less and less likely, the probability still exists. If those creditors decide to sell their common shares to recapture invested capital, it would put downward pressure on the stock price and would reduce the number of shares available for distribution to old common shareholders. Pushed low enough, AAMRQ shareholders of record could receive nothing more than what they already have.

    Criticize me for my ultra-conservative prior outlook if you want, but differences in opinion are what makes our markets work.

    Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.

    Themes: quick-picks-lists Stocks: AAL, AAL, AAL
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Comments (23)
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  • stockman52
    , contributor
    Comments (21) | Send Message
     
    FYI. I am an employee (AAL) and the company told us that the amount of shares i received on the dec 09 2013 would be about half of what i should expect to get,with the remaining half over the next 120 days
    13 Dec 2013, 09:25 AM Reply Like
  • Investor RockieK
    , contributor
    Comments (745) | Send Message
     
    Author’s reply » @stockman,

     

    As an employee, you have been awarded a fixed percentage ownership in the company by the court. I don't quite understand why they are making employees wait for their total distribution, but what you have been told is correct. You should expect about the same number of shares delivered to you over the settlement period.

     

    Creditors are to receive a fixed dollar amount to settle their claims. That means the number of shares will vary depending on the average market price.

     

    Don't worry that there is a chance you will not get your remaining shares. As an employee, yours is certain.
    13 Dec 2013, 09:52 AM Reply Like
  • and1baller
    , contributor
    Comments (44) | Send Message
     
    Thank you for this clarification, your original article was a bit confusing but after I re-read it, everything you said becomes a lot more clearer, once I found out how the additional distributions will work.
    13 Dec 2013, 02:13 PM Reply Like
  • Investor RockieK
    , contributor
    Comments (745) | Send Message
     
    Author’s reply » You are welcome. After the initial reader response, I owed and explanation of my assumptions.

     

    Thanks for the read and you comments.
    13 Dec 2013, 02:35 PM Reply Like
  • stockman52
    , contributor
    Comments (21) | Send Message
     
    FYI. didnt get alot. got 158 shares.
    13 Dec 2013, 02:23 PM Reply Like
  • lostandfound1977
    , contributor
    Comment (1) | Send Message
     
    Thanks for the new article. This unusual case has certainly raised some interesting discussions.
    13 Dec 2013, 05:43 PM Reply Like
  • Investor RockieK
    , contributor
    Comments (745) | Send Message
     
    Author’s reply » It certainly did. Lesson learned for me is: be careful to clarify assumptions and always acknowledge the other side of the argument.

     

    Anyone with an opinion leaning towards a best case scenario certainly was offended. But in bankruptcy, we never know what will happen till the very end.
    14 Dec 2013, 08:06 AM Reply Like
  • Christian V
    , contributor
    Comments (11) | Send Message
     
    I have a question.... I lost the rest of my money ? or I can have a hope that I will receive something in the next 120 days?
    15 Dec 2013, 02:34 AM Reply Like
  • Investor RockieK
    , contributor
    Comments (745) | Send Message
     
    Author’s reply » Christian,

     

    The number of shares you will receive in total is dependent on the average price of AAL.

     

    If AAL trades at an average price around where LCC was trading, you will get back to exactly where you were when AAMRQ was canceled - about 11.30 per share. If the average price is below that, you will receive less. Right now, it is trading above that level. If it maintains a high price, over the next 4 months you could get much more.

     

    My initial article assumed the worst case scenario, while most of the commenters assumed the best. Right now it looks like their case is the higher probability. You just need to wait and see.

     

    Remover, bankruptcy is extremely high risk. You are fortunate that you have a chance to see a gain from here. It's just not guaranteed.
    15 Dec 2013, 07:46 AM Reply Like
  • Christian V
    , contributor
    Comments (11) | Send Message
     
    I always know that you was right... Can you explain me how I have To do The mathematic imagining that the share in the next 120 days is going yo cost $35 a share . To know how much Im going to receive
    15 Dec 2013, 12:31 PM Reply Like
  • Investor RockieK
    , contributor
    Comments (745) | Send Message
     
    Author’s reply » Unfortunately, because you are dealing with market risk, it is hard to estimate what you will receive. Here would be a suggestion.

     

    Set up a spread sheet with the closing prices off AAL over the settlement period. Start with the number of shares withheld to meet claims over the period. At each point (30,60,90, and 120 days) expect a release of claims settlement based on the prior average trading price. This will tell you the number of shares that are required to meet the obligations. Subtract the number of shares distributed to creditors, and the remainder gets distributed to the old common shareholders of AAMRQ.

     

    The unknowns in the equations are: What is the average share price going to be, and how many claims will be paid out over each of the 30 day periods.

     

    Since I have no economic exposure, I am not tracking this.
    16 Dec 2013, 10:11 AM Reply Like
  • Christian V
    , contributor
    Comments (11) | Send Message
     
    Good question christian.... could you please explain us how we make the mathematic to calculate how much are we going to receive if the share still going up or in that price
    15 Dec 2013, 10:10 PM Reply Like
  • ahouseoforange
    , contributor
    Comments (308) | Send Message
     
    The closer we stay to the $30.00 level the fewer shares of AAL will be required for payment to AMR creditors (bondholders etc.) on the first distribution date on January 9th. Ideally we hold in the $25 - $30 range through the first week in March and in that case most if not all of the creditors will be paid in full after the March 9th (3rd) distribution. At that point ALL the remaining AAL shares would go to the old AAMRQ holders.

     

    At the average AAL price of $25.00 it takes around 300 million AAL shares to make the AMR creditors whole which will leave give or take 220 million shares of AAL for the AAMRQ holders or a dollar value of between $5 and $6 billion. Taking $5.5 billion and dividing by 394 million AAMRQ shares outstanding each AAMRQ share would be worth about $14.00. At an average AAL price of $27.50 each AAMRQ share would receive give or take $17.50 in AAL shares. The total claims may be slightly lower than 7 1/2 billion dollars since some creditors chose to convert their debt into AAMRQ shares prior to the merger closing which bumped the shares outstanding from the 334 million range to the 394 million range. Kind of a wash since the debt was reduced and the value per AAMRQ not really impacted though more shares are outstanding.
    16 Dec 2013, 01:01 PM Reply Like
  • Christian V
    , contributor
    Comments (11) | Send Message
     
    Whats is going yo happen Thais week? How is going to be The first payment ?? Someone knows??
    2 Jan, 03:07 PM Reply Like
  • Investor RockieK
    , contributor
    Comments (745) | Send Message
     
    Author’s reply » Christian,

     

    I will post here when I hear. Right now, I do not have confirmed information regarding additional distributions.
    2 Jan, 04:04 PM Reply Like
  • Christian V
    , contributor
    Comments (11) | Send Message
     
    Any news for the first distribution?
    5 Jan, 01:10 AM Reply Like
  • WriteUmar
    , contributor
    Comments (6) | Send Message
     
    Hello Author,

     

    Will the tomorrow's 1st distribution be based on the last closing price or it will be a VWAP (Volume Weighted Average Price) of the last x number of days?

     

    Thanks!
    7 Jan, 01:15 PM Reply Like
  • Investor RockieK
    , contributor
    Comments (745) | Send Message
     
    Author’s reply » Distributions are to be based on average prices, not just the closing price. I have yet to receive confirmed distribution information for former common shareholders of AAMRQ. When I receive confirmed information I will post them here.
    7 Jan, 02:24 PM Reply Like
  • Investor RockieK
    , contributor
    Comments (745) | Send Message
     
    Author’s reply » Conversion Price is $25.3863

     

    So, for each share of AAMRQ common stock previously owned, shareholders should receive 0.1319 shares of AAL tomorrow.

     

    Company also re-itterated, "AAMRQ holders may in the future receive additional distributions based on the trading price of AAL common stock during the 120 day period after the effective date and the total amount of allowed claims.."

     

    This is, so far, even better than the best case scenario imagined prior to closing of the deal. I sure do love shoe leather. Yum!
    8 Jan, 02:26 PM Reply Like
  • Christian V
    , contributor
    Comments (11) | Send Message
     
    Hello guys.!! Someone knows about de 2d payment??
    3 Feb, 07:44 PM Reply Like
  • stockman52
    , contributor
    Comments (21) | Send Message
     
    can someone please tell me what the final share price was when the conversion was complete.
    i notice the price in nov 2013 was about $ 12.00 per share for AAMRQ.
    SO how did the AAMRQ holders come out.
    If you had 100 shares of aamrq you could have sold in nov 2013 for $1200 but held on to it ,how much money would you have today.
    thanks
    21 Apr, 08:25 AM Reply Like
  • Investor RockieK
    , contributor
    Comments (745) | Send Message
     
    Author’s reply » Quick calc comes to about .56 shares of the new for the old (check my numbers here someone). For an economic value north of $1900.

     

    Obviously my irrational fear was unfounded. BZ to longs!!
    21 Apr, 08:53 AM Reply Like
  • stockman52
    , contributor
    Comments (21) | Send Message
     
    Wow that great.
    its nice to see the common investor make out better that the AA management that sold at $11 a share in nov.2013
    Happy ending.
    22 Apr, 12:58 PM Reply Like
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