ATA firmer as Southwest wins bid battle; Adelphia bonds up

By Paul Deckelman

New York, Dec. 15 - ATA Holdings Corp. bonds were once again firmer Thursday, as the bankrupt Indianapolis-based air carrier accepted Southwest Airlines Co.'s $117 million bid for six of ATA's leased gates at Chicago's Midway Airport - bid which will also give low-airfare airline industry leader Southwest a controlling stake in its erstwhile rival.

Elsewhere, bonds of Adelphia Communications Corp. were seen higher - as potential co-acquirer Time Warner agreed to settle Securities and Exchange Commission charges of accounting fraud at its America Online unit, a development seen clearing the way for Time Warner to proceed with its plans to acquire assets from bankrupt Adelphia.

A trader in distressed bonds, who had seen ATA's 13% notes due 2009 and 12 1/8% notes due 2010 push up to about 46 bid, 48 offered on Wednesday from prior levels in the upper 30s, saw those bonds actually move as high as 50 bid Thursday morning on the news that the bidding war for the bankrupt carrier's assets was over, with Southwest in command. However, he saw the bonds come back down again from that peak level to close at 47 bid, 49 offered, up only a point on the session.

ATA late Wednesday decided that the Southwest offer was better than the earlier $89.3 million offer to buy 14 Midway gates that rival low-fare carrier AirTran Airlines had made. After ATA sought Chapter 11 protection from its junk bond holders and other creditors in late October - driven into bankruptcy by high fuel costs and weak revenue generation - it came to a tentative agreement with Orlando, Fla.-based AirTran to sell AirTran its Midway gates, as well as coveted landing slots at LaGuardia Airport in New York and Reagan National Airport in Washington. AirTran, which maintains its main hub in Atlanta, where it faces heavy pressure from hometown carrier Delta Air Lines Inc., was looking to diversify and establish a Midwest hub at Midway, which is popular with Windy City travelers because it is closer to downtown than the larger O'Hare International.

However, its agreement with ATA proved to be no more than a stalking horse bid.

Southwest, the seventh largest U.S. airline behind the old-line legacy carriers like American Airlines and Delta, and the clear leader in the increasingly popular low-fare segment that has grabbed an ever-expanding share of the market from old-line carriers, moved in with what was originally billed as a $100 million offer for the six gates, filing its bid last Friday, the deadline for accepting bids.

AirTran contended that Dallas-based Southwest, which is already the dominant carrier at Midway, was specifically looking to block AirTran's entrance to the Chicago airport. Assuming the Southwest offer is approved by ATA's creditors, the City of Chicago (which owns and operates Midway and leases the gates there to the carriers that operate out of it) and judge Basil Lorch III of the U.S. Bankruptcy Court in Indianapolis, the deal - for the transfer of six of ATA's 14 Midway gates to Southwest, plus Southwest's controlling role in the reorganized ATA - will leave the combined Southwest/ATA controlling roughly 80% of the gates at busy Midway, a major gateway to Midwestern and other domestic destinations.

Lorch is expected to approve the plan at a hearing on Tuesday.

The $117 million bid is structured to give ATA $40 million to pay for the six gates and a hanger at Midway. Southwest would then funnel another $40 million to ATA as a short-term loan to get it through the bankruptcy process, and would guarantee $7 million in loan payments to Chicago.

Once out of bankruptcy, Southwest would invest another $30 million in ATA in the form of convertible preferred notes it could exchange later for about 27.5% of ATA's stock. Southwest would replace certain senior ATA executives with its own people, who would then proceed to try to wring productivity savings out of the financially challenged airline by cutting labor costs 15% to 20%.

Southwest has said that ATA would continue to operate as a separate airline, flying out of hubs at Chicago and Indianapolis, and the two airlines would code share on certain routes, which could bring the cash-strapped ATA as much as $25 million annually, Southwest chief executive officer Gary Kelly said.

In other airline related activity, a trader said he saw bankrupt United Air Lines corporate parent UAL Corp.'s notes "up a little," trading at 7¼% bid, 8 1.4% offered. He saw no activity in Delta's bonds.

Adelphia gains

The trader saw Adelphia Communications' busted convertible notes two points better at 22 bid, 24 offered, while its 10¼% notes due 2011 were a point better at 99 bid, 100 offered.

A market source at another shop saw Adelphia's 9¼% notes that were to have matured in 2002 push up to 95.25 bid, up 2¾ points on the day. He saw the 10¼% notes due 2011s up just 1/ 8 at 99.5.

At another desk, a market source saw Adelphia's 9 7/8% notes due 2007 up more than two points on the session at 96.5 bid, while its Century Communications unit's 8 78% notes due 2007 were in nosebleed territory, up a point to 120.

News of a pair of proposed settlements to Time Warner legal problems were seen by observers as clearing away distractions and letting the media giant focus on its growth strategy - which includes making a bid for Adelphia's assets in concert with rival cable giant Comcast. The two may even bid to buy the bankrupt Greenwood Village, Colo. cable company lock, stock and barrel and then divvy up the assets later according to their respective footprints.

The auction of Adelphia's assets could bring as much as $17 billion to $20 billion. Adelphia CEO William Schleyer recently said Adelphia would be accepting final bids in January, and would make a decision during the first quarter on whether to accept any of the asset bids or go with its original game plan of reorganizing and emerging as a slimmed-down, independent company.

© 2015 Prospect News.
All content on this website is protected by copyright law in the U.S. and elsewhere. For the use of the person downloading only.
Redistribution and copying are prohibited by law without written permission in advance from Prospect News.
Redistribution or copying includes e-mailing, printing multiple copies or any other form of reproduction.