Air Canada creditors to get only cents on the dollar

By Jeff Pines

Washington, July 1 - Air Canada, Inc.'s affected unsecured creditors will get an estimated recovery ranging from 6.17 cents per C$1 to 9.25 cents per C$1 claim, according to the company's reorganization plan filed with the Ontario Superior Court and available on its website.

Though Air Canada warns these numbers are subject to change, if there are C$10 billion of allowed claims, then an affected unsecured creditor would an estimated recovery of 9.25 cents per C$1. If proven claims equal C$12.5 billion, then the recovery would be 7.4 cents per C$1. If there are C$15 billion of allowed claims, affected unsecured creditors would only get 6.17 cents per C$1.

A creditors' meeting will be held on Aug. 17 in Montreal to vote on the plan. At least 66 2/3% by value of the voting claims of the affected unsecured creditors are needed to approve the reorganization plan.

A major part of the reorganization is a C$850 million rights offering for Ace Aviation Holdings, its new parent. It will offer 42.5 million rights to buy shares at C$20 per share.

The rights, which must be exercised by Aug. 27, will be distributed to the affected unsecured creditors of the Montreal-based airline.

If the plan is approved, the affected unsecured creditors will control 45.77% of ACE through the settlement of claims; 42.06% will be held by those creditors who exercised their rights, or Deutsche Bank, which has agreed to be the stand-by purchaser; 9.16% by Cerberus Capital Management LP in the form of ACE preferred shares; 3% for a stock option plan and 0.01% for existing shareholders.

Non-Canadians will get variable voting shares and Canadians will get voting shares. Variable voting shares get one vote per share but may not have more than 25% of the total voting power.

If the plan is approved, Air Canada will move for a confirmation order sanctioning the plan on Aug. 23.

Exit facility from GECC

Once Air Canada emerges from protection, General Electric Capital Corp. will provide it with a $681 million exit facility. The facility will consist of a $425 million non-revolving multicurrency term loan, a $160 million multicurrency non-revolving multiple draw credit facility and a $96 million term loan to buy two Boeing 747-400 aircraft from GECC. (Exit facility amount are in U.S. dollars.)

The $425 million facility matures March 31, 2011 and no principal payments are necessary until June 30, 2007. The $160 million facility matures March 31, 2013 with no principal payments due until March 31, 2009 and the $96 million loan matures Sept. 30, 2008 with principal payments starting Dec. 31, 2004. The $96 million facility will bear interest at Libor plus 400 basis points.

Under the regional jet facility, GECC will provide Air Canada with up to $950 million to buy new regional aircraft.

The airline will also give GECC a seven-year convertible note for $122 million with a 7.5% interest rate convertible into ACE shares.

Air Canada filed for protection under the Companies' Creditors Arrangement Act on April 1, 2003.

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