$100 million high-yield debt offering for a leading air cargo company. AtlasAir in Golden, Colo., uses an all-Boeing fleet to provide cargo transportation services to major commercial air carriers. The proceeds raised from the 144A offering of senior unsecured notes will be used to finance predelivery deposits on Boeing 747-400 freighter aircraft it has ordered. Although AtlasAir has used Merrill Lynch & Co. and Smith Barney to arrange financing, the company chose to work with BT Securities Corp., which has helped arranged a $175 million revolving credit facility for the company. "BT has been working with the company and supported it in the bank market for quite some time," said an AtlasAir official, who requested anonymity. "They had strong high-yield sales capabilities and were restructuring our existing bank debt, so it made sense to have them involved in the whole process." BT Securities declined to comment. Bankers Trust was the sixth-largest lender to the airline industry in 1996, with $1.5 billion in deals and a 22% market share, according to Securities Data Co. Non-investment-grade unsecured debt is rare in the airline industry; the Atlas bonds are only the second such issue this year, and there have been only a handful in recent years. In 1996, aerospace bonds made up 2% of the high-yield market, and bonds issued by transportation companies constituted 4% of the market. Although analysts anticipate $40 billion to $50 billion in aircraft orders going forward, most financing is done through leveraged leases and securitized vehicles known as enhanced equity trust certificates. But given the attractive high-yield market and the demand from collateralized bond obligations to diversify, that may be changing. "There has not been a big appetite for airline paper, but given the cash buildup and the relative yield levels, that appetite is coming back," one analyst said. "Still, it's a tough market, given the bankruptcies of other airlines, the cyclical nature of the business, and the competition. "The industry has fundamentally changed, and airlines have huge asset pool values if investors are willing to suffer through years of volatile cash flow," the analyst said. Other observers say that although the investor community is still unfriendly to airline companies, the company has built an interesting market for itself and has an "impressive list of clients and contracts," which includes China Airlines Ltd., Lufthansa Cargo AG, British Airways World Cargo, and KLM Royal Dutch Airlines. In mid-July, Morgan Stanley, Dean Witter, Discover & Co. underwrote a $100 million offering for Indianapolis-based American TransAir Inc. Charles Cleaver, treasurer of American TransAir, said Atlas is going to "probe new depths" with this junk bond offering but that he does not anticipate a flurry of airline issuance any time soon. High-yield bonds are still a "very specialized product" for the airline industry, Mr. Cleaver said.
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