American Airlines has outstanding lines of credit and various loan agreements with a number of financial institutions. Under the terms of these debt contracts, American is required to

(a) maintain a minimum balance of \($1.25\) billion of unrestricted cash and short-term investments,

(b) maintain a ratio of operating cash flow to interest expense of at least 1.3 to 1.0, and

(c) restrict any dividend payments to American shareholders to not more than 25 percent of net income. Discuss why American’s lenders would impose these financial and operating restrictions on the airline. Discuss why American would agree to the restrictions.