Air Canada's debt will be converted into equity in the fall after a reorganization plan is approved by creditors, one dealer explained. The plan also offers unsecured creditors rights to purchase C$850 million of additional Air Canada equity at a discount. Air Canada officials did not return calls and a Tokyo Leasing official declined comment.
"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," he noted. Deutsche Bank will act as the company's underwriter and the deadline for the rights offering is this Friday.
The auction comes on the back of a C$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 C$10 billion and C$14 billion. According to the trader these amounts give a better idea of what the claims are going to be worth and how the assets will be split among the creditors. Air Canada's unsecured creditors are 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 after investing C$250 million ($185 million). A Cerberus official declined comment.