Air Canada creditors to get pennies on the dollar

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Panama Jack
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Air Canada creditors to get pennies on the dollar

#1 Post by Panama Jack » Fri Jul 02, 2004 12:13 am

Ouch!!! Image Image

Air Canada Creditors to Get Pennies on the Dollar

Thu Jul 1,10:54 AM ET

By Robert Melnbardis

MONTREAL (Reuters) - Air Canada creditors are to get just pennies on each dollar they are owed by the insolvent airline, according to its plan to emerge from bankruptcy protection.

In its plan of arrangement with creditors filed in an Ontario court on Wednesday, Air Canada said it expects that the total amount of proven claims against it by unsecured creditors will be C$10 billion to C$15 billion ($7.5 billion to $11.3 billion).

It said the recovery rate for unsecured creditors would be a maximum of 9.25 Canadian cents and a minimum of 6.17 Canadian cents for each dollar of proven claim.

Air Canada is inviting unsecured creditors to a meeting Aug. 17 to vote on the plan. If creditors accept the plan, Air Canada would seek court approval on Aug. 23, the airline said.

Air Canada's creditors include bond and long-term debt holders, suppliers and trade creditors.

The plan, along with Air Canada's new business strategy, aims to restructure the airline's operations and cost structure, it said.

Air Canada plans to emerge from bankruptcy protection on Sept. 30. It obtained court protection from creditors on April 1, 2003.

"We believe that the implementation of the plan will contribute to Air Canada's positioning as a stable and long-term competitor in the airline industry," Robert Milton, president and chief executive, said in a letter to creditors.

Failure to implement the plan could provoke the liquidation of the airline, Milton added.

Ernst & Young, the court-appointed monitor for Air Canada, recommends voting for the plan because in the event of liquidation of the airline's assets, there would be nothing left for unsecured creditors, Milton said.


RIGHTS OFFERING

Unsecured creditors will also have the right to participate in a C$850 million rights offering at C$20 a rights share. Deutsche Bank is back-stopping the rights offering, agreeing to purchase all rights shares not otherwise subscribed for.

In court documents, Air Canada repeated that its current common shares will in effect be worthless, as current shareholders will own only 0.01 percent of the fully diluted equity of a restructured version of the airline.

Air Canada shares fell 4 Canadian cents, or 3.3 percent, to C$1.16 on the Toronto Stock Exchange on Wednesday. The stock market was closed on Thursday for Canada's national holiday.

The new Air Canada that would emerge from bankruptcy protection would be a slimmed down version of the carrier that slipped into insolvency last year after struggling under heavy debts.

Unsecured creditors will own almost 88 percent of the restructured airline, while a unit of Cerberus Capital Management, the New York-based investment company, will hold 9.2 percent.

Another 3 percent will be set aside under a stock option plan for Air Canada management.

In addition to C$1.1 billion of new equity, the restructured Air Canada will benefit from more than C$1 billion of concessions from unions representing the bulk of its 33,000 employees. Several unions have yet to ratify agreements on those concessions.

General Electric Capital Corp., Air Canada's biggest aircraft lessor, has agreed to provide it with US$681 million of loans to exit bankruptcy protection and up to US$950 million to buy new regional jets.

($1=$1.33 Canadian)

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