Banking & Finance

New ATA shares harder to land: Public offering not expected as airline exits bankruptcy

January 2, 2006

You probably wouldn't want to buy shares of the first discount airline in recent years to file bankruptcy reorganization-not unless you're a short-seller or a relative of Norman Vincent Peale. Not in this airline climate.

But even they won't have a chance to buy shares being issued in ATA Holdings Corp. after the Indianapolis airline emerges from Chapter 11 as early as next month.

ATA was delisted from Nasdaq shortly after it filed for bankruptcy in October 2004. Old shares once worth more than $100 million were wiped out.

A limited number of shares in the reorganized ATA will be available in a private offering, including some additional shares for unsecured creditors. But, according to plan, none would be traded in public markets.

"The new holding company does not intend to register the new shares ... unless it is required to do so, or to apply to list the new shares on the Nasdaq National Market or any other exchange," states a portion of ATA's reorganization plan.

Going public isn't standard practice for David Matlin, of MatlinPatterson Global Opportunities Partners.

His is the New York-based "vulture" investment firm that will pour up to $120 million into ATA to resuscitate it and, if all goes well, let Matlin walk away with a big return later.

According to a Forbes article on the low-profile Matlin, he'll pick up a sick company for as little as 15 cents on the dollar. He likes to grab a controlling position in a company by lassoing most of the debt and thus also control of the all-powerful creditors committee, which determines distributions in a bankruptcy.

Neither Matlin nor his partners would comment.

In ATA's case, Matlin's firm will name five of the seven members of reorganized company's board and "will control the business and affairs of the reorganized companies and all matters requiring the vote or approval of holders of the new shares," according to ATA's plan.

Under Matlin's thumb, unsecured creditors will receive 7 percent of the new common stock, with rights to buy another 2 percent-perhaps more-later.

Stock options would be granted to pilots-who collectively would be eligible for 4 percent of new shares-and to management, eligible for 5 percent.

At plan confirmation, MatlinPatterson would own about 78 percent of new shares or perhaps more if the private offering of ATA shares isn't' fully subscribed.

Then, assuming ATA can return to profitability in the months and years ahead, an initial public offering is possible, said analysts.

"I'm sure there's an interest in going public again. That would get MatlinPatterson out of [ATA's] business," said Robert Mann, of the Port Washington, N.Y.-based R.W. Mann & Co. airline consulting firm.

But an IPO later isn't assured, said Robert Woodley, principal of Woodley Farra Manion Portfolio Management in Indianapolis.

"Selling to other investment banking firms or other airlines is another way to turn their investment into money," Woodley said.

Indeed, that's how Matlin exited the Days Inn lodging chain, which he bought in 1994 at $45 million, or about 30 cents on the dollar, according to Forbes. After the firm restructured, he sold the hotel's property in pieces to lodging chains and to an investment firm, walking away with an estimated $150 million.

Even if ATA went the way of an IPO years down the road, success isn't assured for investors. Woodley noted that the stock of Indianapolis-based Paul Harris stores did well for about a year following restructuring then tanked again as the company again fell on the court's mercy.

Woodley said ATA will emerge from restructing with less debt, as fuel costs moderate and with union concessions that have lowered its costs.

"It could end up being a much better situation for investors under those circumstances."

The value of ATA could indeed grow after restructuring, although airline analysts aren't convinced that the airline's plans to emphasize military charter flying and limited scheduled service is a wise strategy.

These days, airline stocks are out of favor. Even some investors who buy stocks of an industry hitting the skids are skittish about the airline industry as one airline after another enters bankruptcy.

Airlines are capital-intensive. Airlines don't really control their prices anymore in a cutthroat industry viewed as a commodity, said Mark Foster, managing director and chief investment officer of Kirr Marbach & Co. in Columbus.

Even for successful carriers, "the marketplace just doesn't fairly value some of these firms. There's no point in paddling against the tide," said Mann.

A publicly traded ATA some day also would have disadvantages, such as the demands of Wall Street expectations and the cost of communicating with shareholders and financial reporting requirements, Woodley said.

Indeed, ATA founder and former CEO George Mikelsons tried to remove the yoke of Wall Street in 2001, in a $175 million plan to buy the 20 percent of ATA shares he didn't already own.

Bankers ran from the deal to take the company private after the September 2001 terrorist attacks devastated the airline industry.

Mikelsons, whose 8 million shares in ATA will be rendered worthless in the reorganization, declared in 2002 that "had I to live my life over again, in May of 1993, I would have not taken this company public."
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