An agreement announced yesterday means bankrupt Trans World Airlines Inc.'s reorganization plan will likely be clear for takeoff by early next year, the company said.
"Well it looks like TWA may actually make it out of bankruptcy," said Philip Baggaley, a director at Standard & Poor's Corp, adding, "I don't think they'll make it out in very good shape."
While a $200 million cash infusion from owner Carl Icahn helps alleviate a near-term cash squeeze, giving the airline room to maneuver, the company's long-range prospects still appear weak, he said.
Charles Mancuso, a senior analyst at Moody's Investors Service, agreed.
"It's the industry, it's their competitive situation -- and their route structure does not put them in the major league," he said.
The agreement in principle between TWA's creditors; unions; the Pension Benefit Guaranty Corp., a government agency that insures pension plans; and Icahn calls for Icahn to provide financing for the airline, guarantee pension payments, and give his TWA stock and bonds to the company.
At a Washington, D.C., news conference, TWA management committee officials said Pension Benefit had agreed to join the others in the agreement. The pact calls for Icahn to provide about $80 million in minimum funding for ongoing plans and to guarantee a total of $240 million payable over eight years to support the airline's existing pension plans should they be terminated.
Earlier, the airline had pledged a note of $300 million to the plans, secured by its international routes and Kansas City maintenance base.
The agreement also calls for the immediate cash infusion by Icahn.
"We anticipate $50 million to be made available immediately, followed by another $150 million when the transaction receives bankruptcy court approval," Glenn R. Zander, a member of the two-person management committee, said in a TWA release. "This $200 million cash infusion has a two-year term at very favorable rates to TWA."
The financing consists of $185.3 million provided by an Icahn entity for a two-year term at 1% over prime annually. An Icahn entity will also guaranty a $14.7 million minimum purchase price for Mid-coast Aviation, a TWA subsidiary.
Zander was named to the management committee by TWA's unsecured creditors committee. The other member, Robin H.H. Wilson, was appointed by TWA's labor adivsory committee.
Icahn is expected to surrender control of TWA when the agreement receives final approval from bankruptcy court. That approval is expected in about 30 days.
Under the agreement, 22,700 TWA employees granted a 15% wage and benefit concession that started in September, translating to approximately $660 million in savings over a three-year period. Employees will own 45% of the reorganized TWA.
Unsecured creditors would own the remaining 55%. The plan would cancel about $1 billion in unsecured claims, in addition to the canceled claims of Icahn entities.
The airline's entire reorganization plan is scheduled to be submitted to bankruptcy court on Jan. 12, the TWA release says.
In a release, Pension Benefit said of the agreement:
"Today's settlement is a fair and reasonable solution that balances the government's responsibilities to TWA retirees, employees, and the American taxpayer. It will save jobs, protect pensions, and reduce the losses PBGC is subject to as the guarantor of TWA pensions."
In other news yesterday, Duff & Phelps announced new joint venture agreements with rating agencies in Chile and Argentina.
The venture known as Econsult/Duff & Phelps will be based in Santiago, Chile, and BDE/Duff & Phelps will be based in Buenos Aires, Argentina, Daniel J. Donoghue, senior vice president of Duff & Phelps Rating Co. (USA), said in a release.
"We chose to form an alliance with Duff & Phelps on the basis of their reputation in the United States for high-quality fixed-income analysis," Hernan Cheyre, a senior partner of Econsult, was quoted in the release.
Duff & Phelps forged a similar joint venture in Mexico in December 1991.
"The addition of Chile and Argentina to our existing presence in Mexico provides Duff & Phelps with solid operations in the most desirable Latin American markets," Donoghue said.
In secondary trading, high-yield bonds gained about 1/2 point, with "cyclicals leading the charge," one trader said. Spreads on high-grade bonds remained unchanged in lackluster trading.
AMR Corp. issued $200 million of 7.75% unsecured notes due 1997. The noncallable notes were priced at 99.954 to yield 7.76%, or 170 basis points over comparable Treasuries. Moody's rates the offering Baa2, while Standard & Poor's rates it BBB. Morgan Stanley & Co. managed the offering.
Norwest Financial issued a two-part offering totaling $200 million. The first tranche consisted of $100 million of 4.875% senior notes due 1994. The noncallable notes were priced at 99.764 to yield 5%, or 37.5 basis points over comparable Treasuries.
The second consisted of $100 million of 6.875% senior notes due 1999. The noncallable notes were priced at 9.317 to yield 7%, or 55 basis points over comparable Treasuries. Moody's rates the offering Aa3, while Standard & Poor's rates it A-plus. Merrill Lynch & Co. lead managed the offering.
Stanley Works issued $100 million of 7.375% notes due 2002. The noncallable notes were priced at 99.686 to yield 7.42%, or 65 basis points over comparable Treasuries. Moody's rates the offering A2, while Standard & Poor's rates it A. First Boston Corp. managed the offering.
Federal Home Loan Banks issued $50 million of inverse floating rate notes due 1995 at par. The notes float monthly at 10.30% under the cost of funds index. The first coupon is 5.703%. Lehman Brothers managed the offering.