Creditors Sell Air Canada Trade Claims

Approximately $1-1.5 billion face value of Air Canada’s trade claims are expected to trade next week as the airline gets closer to exiting bankruptcy. The company’s claims are quoted in the 16-19 context and have been seen changing hands in that range, a trader said. The dealer said a volume of $25-50 million has traded so far.

Air Canada plans to emerge from Chapter 11 protection by the end of next month. Banks are selling off their exposure to the name, another trader said. “They don’t want equity,” he noted. Air Canada’s unsecured creditors are bank, bond and long-term debt holders, suppliers, labor and trade creditors.

Air Canada’s debt will be converted into equity in the fall after a reorganization plan is approved by creditors (LMW, 7/26). The plan also offers unsecured creditors rights to purchase C$850 million of additional Air Canada equity at a discount. Deutsche Bank is the underwriter for the rights offering. The plan states a maximum recovery rate of 9.25 Canadian cents and a minimum of 6.17 Canadian cents for the dollar on proven claims.
The company’s creditors will vote next week on the exit plan. After the restructuring is complete they will end up with almost 88% of the airline.

“It is definitely an equity play,” a dealer said. “It will basically come down to what people think the equity will be worth in the next two or three years,” he noted. Air Canada’s equity is currently quoted in the 23-26 range, according to a trader. Several weeks ago Goldman Sachs bought a ¥20 billion (C$251 million) auction of Air Canada trade claims sold by Sumitomo Bank’s Tokyo Leasing branch.