Unsecured creditors of bankrupt airline ATA Holdings are set for a substantial recovery on their defaulted investments, an almost unheard of occurrence in the distressed airline arena. If recovery for the carrier does prove substantial, it could prompt the market to take a radical rethink when it comes to other airline players.
Ron Bringewatt, managing director of research at The Seaport Group, a New York distressed dealer, expects ATA's unsecured bonds to recover in the mid-70s, against the mid-50s level they were trading at last week. This projection is based on Southwest Airlines' agreement to invest money, ATA's new flight schedule for Chicago's Midway airport, its shifting planes to Indiana and the expectation of higher profits. He anticipates earnings before interest, taxes, depreciation, amortization and restructruing costs will be above $200 million, which he said would render the bonds worth 20 points higher than current levels.
A substantial recovery would underline that damage in the sector is not necessarily uniform. "[A mid-70s recovery] would certainly change the dynamics of how one looks at the airlines," said one distressed investor. Roger King, analyst at CreditSights, noted most unsecured bondholders have seen single-digit recoveries in the airline sector.
Bringewatt expects the airline's reorganization plan to be circulated over the next several months, its renegotiations of aircraft leases to be completed soon and the airline to exit bankruptcy before year-end. A call to George Mikelsons, chairman, president and ceo of ATA was referred to Roxanne Butler, spokeswoman, who did not return the call.
Almost two months ago, ATA's 12 1/8s of '10 and 13s of '09 were priced around 20, recently rose to 65, then fell to the mid-50s last week. Bringewatt attributed the drop to profit taking, the recent bump up in oil and anxiety surrounding Delta Air Lines's fare cuts. King said worries over Delta sparking a fare war are overblown. "It's just another step in the downhill march in airline prices," he stated.