Air Canada/Air Partners L.P.'s $450 million bid yesterday became the winner in a one-time four-way competition for bankrupt Continental Airlines' affections.
Robert R. Ferguson 3d, Continental's chief executive officer, called the selection of Air Canada "a major milestone for Continental."
Continental's board of directors voted unanimously to accept Air Canada's cash bid upon Continental's emergence from bankruptcy as expected early next year, according to a Continental press release.
"This is the first of several possible alliances that will enable Continental to establish its global presence in the future," Ferguson sad.
Philip Baggaley, a director at Standard & Poor's Corp., was more cautious.
"This seems to be sufficient to generate them enough cash flow to emerge from bankruptcy, but it doesn't solve their problems by any means," he said.
However, he added, "I'd rather be a Continental bondholder than one of TWA."
The list of Continental's suitors had included Lufthansa and U.S. billionaire Marvin Davis; Aeromexico and Houston businessman Charles E. Hurwitz's Maxair; and Houston Air and Mexicana Air. Benefit Concepts New York Inc. also showed interest, but failed to meet qualifying terms to become a bidder as set earlier by a bankruptcy court, Continental spokesman Richard Danforth said.
The Lufthansa group had backed out a while ago, he said. He declined to comment on the status of the other two bidders. Lufthansa spokesman Charles Croce said the Lufthansa/Davis partnership submitted its bid Sept. 16 but declined to finalize it as required by the court on Nov. 2. He declined to say why.
Danforth also declined to comment on why Continental selected Air Canada's bid, other than to say Continental's board must have determined it to be the highest and in the best interest of the company.
"I think the dollars that Air Canada and Air Partners' deal had were slightly better than the last numbers I hear out of the Hurwitz" group, said Robert Decker, an analyst at Duff & Phelps/MCM Investment Research Co. He added that the alliance offered some potential "strategic" benefits, such as potential linkups with traffic flows from across the border.
In a statement issued yesterday, Hurwitz, chairman of Maxxam Inc., said: "Our initial offer prompted other bids and, therefore, brought added value to Continental ... We wish the successful bidder and everyone at Continental all the best. The traveling public and Houston need and deserve a strong, Houston-based Continental Airlines."
The Air Canada group's investment includes $140 million of new equity, $110 million of which will be in common stock shared equally by Air Canada and Air Partners, according to the Continental release. Also, Air Canada will buy $30 million of non-voting preferred stock at a dividend rate of not more than 12%. The group will also buy $150 million of series B debt, secured by some unencumbered Continental assets.
Air Partners plans to arrange for the purchase of $160 million of Series A debt backed by Continental Micronesia Inc. assets.
To start, Air Canada and Air Partners will each purchase 27.5% of the equity in a reborn Continental. Air Canada will get 24% of the voting stock and Air Partners will have 41%. Both will receive warrants allowing them to increase their ownership.
Additionally, unsecured creditors, including senior bondholders, will receive 35.6% of Continental's equity upon its reorganization.
Continental said the unsecured creditors committee "enthusiastically" backs the transaction.
"This transaction provides the unsecured creditors of Continental Airlines with a substantial minority stake in the airline, as well as significant representation on Continental's board," representatives of that committee were quoted in Continental's release as saying.
"Our equity interest in Continental is strengthened by the cash infusion this investment provides and the plans Continental has to improve its service in the future," the representatives said.
Continental will finalize its disclosure statement and reorganization plan and submit them to the U.S. Bankruptcy Court in Wilmington, Del., later this month. In addition, the transaction is subject to some regulatory reviews, including by the U.S. Department of Transportation, and to confirmation of the reorganizaton plan.
In yesterday's market, high-yield bond prices ended unchanged to slightly better as worries over a new supply deluge continued to fade. Investment-grade bonds ended unchanged.
Big New-Issue Day
Supervalu Inc. yesterday issued a three-part offering totaling $700 million. The first tranche consisted of $300 million of 5.875% notes due 1995. The noncallable notes were priced at 99.877 to yield 5.92% or 75 basis points over comparable Treasuries.
The second tranche consisted of $300 million of 7.8% notes due 2002. The noncallable notes were priced at 99.691 to yield 7.845% or 85 basis points over comparable Treasuries. The third tranche consisted of $100 million of 8.875% debentures due 2022.
Noncallable for 10 years, the debentures were priced at 99.916 to yield 8.883% or 115 basis points over comparable Treasuries. Moody's Investors Service rates the offering A3, while Standard & Poor's Corp. rates it A. Goldman, Sachs & Co. lead managed the offering.
Ford Motor Co. issued a two-part offering totaling $500 million. The first tranche consisted of $250 million of 7.50% notes due 1999. The noncallable notes were priced at 99.969 to yield 7.506% or 95 basis points over comparable Treasuries.
The second tranche consisted of $250 million of 8.875% notes due 2022. Noncallable for 10 years, the debentures were priced at 99.43 to yield 8.93% or 120 basis points over comparable Treasures. Moody's rates the offering A2, while Standard & Poor's rates it A. J.P. Morgan Securities Inc. lead managed the offering.
Federal National Mortgage Association issued $200 million of 6.35% medium-term notes due 1997. Noncallable for three years, the notes were priced initially at 99 31/32 to yield 6.357 or 30 basis points over comparable Treasuries. Goldman Sachs managed the offering.
Mellon Bank Corp. issued $200 million of 7.625% senior notes due 1999 at par. The noncallable notes were priced to yield 108 basis points over comparable Treasuries. Moody's rates the offering Baal, while Standard & Poor's rates it A-minus. Goldman Sachs lead managed the offering.
CIT Group issued $100 million of medium-term floating rate notes due Nov. 16, 1993. The noncallable notes were priced initially at par and float daily at 245 basis points under the prime rate. They pay quarterly. Moody's rates the offering A1, while Standard & Poor's rates it A-plus. Morgan Stanley & Co. managed the offering.