Air Canada's trade claims have been trading actively on a "when-issued" basis as distressed debt investors take bets on the value of future equity in the bankrupt airline. The company obtained approval from the Ontario Superior Court for its reorganization plan last Monday, with the court approving C$10 billion ($7.7 billion) of claims. Air Canada's debt will be converted into equity in the fall after the reorganization process is completed.
The claims changed hands in the 13-14 context, ex-rights and two or three points up with rights, a trader said. Two weeks ago Deutsche Bank won three auctions for about $1.5 billion face-value of claims in the bankrupt airline. Last month Goldman Sachs bought a ¥20 billion (C$251 million) auction of trade claims sold by Sumitomo Bank's Tokyo Leasing branch (7/26).
"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 added. Unsecured lenders are slated to end up with almost 46% of the airline after the restructuring is completed. The approved plan also offers unsecured creditors the chance to increase their stake in the company to 88% by participating in a C$850 million ($650 million) rights offering at a discount. Deutsche Bank will underwrite the offering. Along with the unsecured creditors, Cerberus Capital Management will receive 9.2% of the company's equity after investing C$250 million ($185 million).
"We will now focus in putting together what is necessary to implement the plan," a company spokesman said. This week, the Toronto Stock Exchange announced the current Air Canada stock will be delisted and replaced by shares of a new holding company called ACE Aviation Holdings. ACE will become the parent holding company under which the reorganized Air Canada, the Air Canada's subsidiaries and business partnerships will be held.