An auction took place this morning for ¥20 billion (CAD$251 million) of Air Canada trade claims offering distressed debt investors a chance to stake a claim for a slice of the company as part of its reorganization. Tokyo Leasing, a branch of Sumitomo Bank is said have been the seller. Air Canada officials did not return calls and a Tokyo Leasing official declined comment. The winner of the auction could not be determined by press time.
The company’s debt will be converted into equity in the fall after a reorganization plan is approved by creditors, one dealer explained. In addition to the conversion of debt into equity, the plan also offers unsecured creditors the possibility to participate in an CAD$850 million rights offering to purchase additional Air Canada equity at a discount. “It is definitely an equity play,” one distressed-debt dealer said. “It will basically come down to what people think the equity will be worth in the next one or two years,” the dealer noted. Deutsche Bank will act as the company’s underwriter and the deadline for the rights offering is July 31. “[The restructuring] is coming close to the end of the game,” he underlined.
The latest auction comes on the back of a CAD$80 million lease claims auction that took place last Tuesday. Market participants said the winning bid was placed in the 17 1/2- 18 context by Deutsche Bank. Pegasus was the holder of the lease on a fleet of aircrafts, traders said.
In its plan of reorganization Air Canada noted the total amount of proven claims against its unsecured creditors will be between CAD$10 billion and CAD$14 billion, a trader said. According to the trader these amounts give a better idea of what the claims are going to be worth and how the assets are going to be split among the creditors. Air Canada’s unsecured creditors are reportedly bank, bond and long–term debt holders, suppliers and trade creditors.
Air Canada’s creditors will vote on the plan by mid-August. After the restructuring is complete they will end up with almost 88% of the airline. Cerberus Capital Management will receive 9.2% of the equity in Air Canada after investing C$250 million ($185 million). A Cerberus official declined comment.