TWA yesterday confirmed talks on a plan that has Chairman Carl Icahn handing the troubled airline's controls to its employees and creditors.
"I think either way TWA is still in very bad shape," Philip Baggaley, a Standard & Poor's Corp. director, said yesterday. He added, however, that reaching an agreement would help the airline.
A TWA release yesterday said the airline and its official unsecured creditors' committee are working with TWA's unions on a deal that calls for employees to give 15% in wage, benefit, and work rule concession worth an estimated $200 million a year in return for 45% of TWA's common equity.
TWA's creditors would get debt securities, preferred stock, and 55% of the common equity, which would be distributed under a yet-to-be filed reorganization plan, the release says.
The airline's announcement confirmed a report yesterday in The Wall Street Journal.
The plan calls for eliminating about $200 million of the airline's yearly debt service.
The arrangement may also include a $150 million infusion by Mr. Icahn to provide liquidity until the plan's effective date.
"While no agreement has been reached as yet, this arrangement is designed to make TWA stronger and insure its future as an independent carrier," the release says.
Earlier in the day, the head of TWA's pilots's union said reports that Mr. Icahn would turn over the airline to creditors and employees were "premature."
Bill Compton, chairman of the TWA pilot group's Master Executive Council of the Air Line Pilots Association, said in a statement: "TWA's pilot are involved in discussions that we hope we will lead to a viable future for our airline, but we continue to require a resolution of several key issues, including job security, pension guarantees, and guarantees of equity value in return for concessions."
The association represents 2,800 pilots at the airline, the statement says. Contacted later in the day, an association spokesman said nothing had changed.
The Pension Benefit Guaranty Corp., a federal agency that insures the airlines's pension fund, also issued a statement yesterday.
"We would be opposed to any proposal that would break up the controlled group, unless it provides adequate protection for the pension plan. Absent a settlement with PBGC, this transaction would do that," the statement says. "We want to make sure that the current controlled group including Carl Icahn's controlled entities stay liable for the $1 billion underfunding in TWA's pension plans. We will take what action we must to protect the pension plans including termination if necessary as a last resort."
TWA petitioned to reorganize under Chapter 11 in U.S. Bankruptcy Court in Delaware on Jan. 31. In a New York press conference that day, Mr. Icahn said: "Hopefully, we believe we can be out of this in six months, and we believe that TWA has a great place in the future."
In secondary trading yesterday, high-grade bond prices finished up 1/16 point, while high-yield bonds finished narrowly mixed.
Merrill Lynch & Co. issued $150 million of 7.375% notes due 2002. The noncallable notes were priced at 99.06 to yield 7.51%, or 78 basis points over comparable Treasuries.
Moody's Investors Service rates the offering A1, while Standard & Poor's Corp. rates it A-plus. Merrill, Lynch & Co. managed the offering.
Moody's gave a B3 rating to Allbritton Communications Co.'s proposed senior subordinated debentures due 2004. The action, which affects about $115 million of long-term debt, reflects Allbritton's "high leverage and modest interest coverage," Moody's said in a release.
"The rating also takes into account the fact that the company manages only a small portfolio of television stations, all of them ABC affiliates, and that about two-thirds of its revenues come from one television station," the rating agency said.