By Brent Jang
Friday, September 24, 2004 - Page B14
In reading the tea leaves on Air Canada's new parent, ACE Aviation Holdings Inc., look at the response of U.S. bondholders. These holders of $280-million (U.S.) of senior notes want in on the action when the airline emerges from bankruptcy protection next Thursday. Even accounting for bookkeeping glitches that have exaggerated demand, an ACE rights offering for bondholders appears to be popular. The rights offering will give ACE shares to these creditors as partial payment for their claims against insolvent Air Canada.
Unfortunately for the bondholders, the court-appointed monitor won't be issuing ACE rights to any of them until the $40-million oversubscription snag is resolved. In the tale of Air Canada's comeback strategy, nothing is ever smooth, it seems.
But that shouldn't distract investors from the early indications of ACE's strength. In the last reported trading day on Wednesday on the U.S. over-the-counter market, ACE shares closed at $20.33, down 67 cents from their record high of $21 on Tuesday. While the trading has been thin -- only 31,213 shares changed hands Wednesday -- creditors already have signalled that they think ACE shares could be worth roughly $26 (Canadian) -- 30 per cent above their $20 face value.
Remember that the United States has its share of struggling carriers. UAL Corp's United Airlines remains in bankruptcy protection and Delta Air Lines Inc. is trying to stay out of bankruptcy court. But also remember that investors are often lured by a story of hope and redemption. Even in the wealth-destroying airline industry, there is excitement in corporate rebirth.
US Airways Group Inc., which recently filed for bankruptcy protection in the United States for the second time since 2002, briefly made converts of some investors.
In over-the-counter trading prior to its Nasdaq listing last October, US Airways shares rose steadily. Then US Airways closed at $9.05 (U.S.) on its first day of Nasdaq trading and surged to $12.90 over the next three sessions.
Even the old Air Canada shares, which ceased trading Aug. 25, staged a strong rally after the carrier bought Canadian Airlines International Ltd. In the span of four months in 2000, Air Canada shares surged 170 per cent to $21.50 (Canadian) on the Toronto Stock Exchange.
With fresh beginnings, the stage is set for ACE to have a good launch on the TSX on Oct. 4, four days after Montreal-based Air Canada emerges from bankruptcy protection. ACE will appeal to some investors searching for value among North American carriers.