ATA creditors want investment deal halted
Committee claims investor, Southwest plan to carve up airline
By Ted Evanoff
[email protected]
November 23, 2005
ATA Airlines struggled for months to find enough cash to stay in the air. This fall, the bankrupt Indianapolis carrier finally found a potential investor. Now, major ATA creditors contend they and the airline were "hoodwinked."
ATA's committee of unsecured creditors claims that the potential investor, Matlin Patterson Global Opportunities Partners II, and ATA business partner Southwest Airlines have quietly worked out a deal to cheaply carve up ATA.
The claim was made Tuesday in a filing in federal bankruptcy court in Indianapolis. The filing points out ATA is being scaled down to a single gate at Chicago Midway, an airport where it was the leading carrier as recently as last year. Southwest dominates the airport today.
ATA bond owners represented by Wells Fargo Bank Northwest filed similar objections to the Matlin proposal Tuesday.
Both groups want the Matlin deal shelved. U.S. Bankruptcy Judge Basil Lorch III is expected to convene a hearing today on the matter in New Albany.
While the objections could delay the Matlin deal, it's not clear whether they would scuttle the investment altogether.
If that happened, ATA might be forced to renew the search for cash or liquidate if it runs out money.
Creditors say ATA could bring in more money by auctioning off valuable passenger gates at Chicago Midway airport than by going forward with the Matlin proposal.
Tuesday's legal action singles out the diminished status of the airline long regarded as an Indianapolis success story. Started in 1972 in the city, the discount carrier became the nation's No. 10 carrier, employing 8,200.
But ATA entered bankruptcy Oct. 26, 2004, broken by fare wars, rising fuel prices and hefty lease payments on a new Boeing airliner fleet. It now employs 4,200.
Soon after the bankruptcy filing, Southwest emerged as a white knight. Retired Southwest executive John Denison joined ATA as chief executive, and the Dallas carrier injected cash and arranged a deal that funneled Midway travelers through both airlines.
Lately, ATA has veered from course. It's eliminating all regular Indianapolis service and would put most of its Midway gates into Southwest's control. And under the Matlin deal, it would take a narrower focus, concentrating on Hawaiian and West Coast flights and the profitable military charter service.
"If (ATA) can make a factual record that this is best possible deal they can get, then that is something the court probably would have to sign off on," said Wells Fargo attorney Gregory Taddonio of the Pittsburgh law firm Reed Smith.
However, the creditors' committee claims Matlin and Southwest froze them out of the reorganization process in "a thinly veiled attempt" to cheaply deliver ATA assets "on a silver platter" to Matlin, and almost completely drive ATA from competition with Southwest at Chicago Midway.
According to the filing, the deal was worked out in secret by Matlin and Southwest "without any participation by the committee, despite the committee's repeated requests to participate."
Matlin and Southwest, according to the filing, spun "a web" around ATA that "has somehow hoodwinked (ATA) management and professionals into believing" Matlin is ATA's only hope to avoid complete liquidation. The filing says ATA's recent proposal to scale back at Midway puzzled the creditors' committee, "despite repeated requests by the committee to understand (ATA's) dismantling of their operations at Midway, which only a year ago were touted by (ATA) and Southwest as the crown jewel of the newly revitalized ATA."
As recently as 2004, ATA commanded 14 Midway gates, more than any other carrier. Two months after the bankruptcy, Southwest and ATA worked out a complicated $113 million bailout.
Originally, Southwest got six of ATA's Midway gates, surpassing ATA as the leading carrier at Midway.
Under the Matlin plan, a second deal is in the works. Southwest would take over another four ATA gates and forgive $20 million in ATA bailout loans. Midway's owner, the city of Chicago, would get three of ATA's remaining Midway gates, leaving ATA with one gate.
Creditors claim the newly proposed Midway gate transfer and the Matlin investment were put together privately without consulting creditors, even though the legal process is supposed to give creditors a large say in a bankruptcy reorganization. A hearing has been set for Dec. 6 in bankruptcy court on the gate transfer.
In a bankruptcy, creditors are those owed money by the bankrupt firm. Bonds, which are a kind of loan, are often not repaid in full in a bankruptcy. Bond owners become unsecured creditors and often are compensated by receiving shares of new stock issued after the firm emerges from bankruptcy.
Wells Fargo claims the Matlin deal limits the bondholders to about 2 percent of the new stock to be issued, while setting aside more than 4 percent for the Air Line Pilots Association and more than 5 percent for ATA management. Matlin would get most of the remainder.
In Tuesday's filing, Wells Fargo contends the Matlin deal amounts to a reorganization plan but should be rejected by the court because it wasn't presented to creditors in a hearing. The filing says the deal is "proposing to treat unsecured creditors in an inconsistent and discriminatory manner."
Southwest officials did not return messages Tuesday seeking comment. The pilots union declined to comment. New York attorneys representing ATA's unsecured creditors committee could not be reached.
ATA issued a statement late Tuesday, saying that after an exhaustive search for investors, it reached a deal with Matlin that "carefully" considers and balances the interests of all parties. "As a result," ATA said, "the company believes it has reached a solution that provides the most equitable outcome possible."
Even if Lorch rejects the Matlin deal today, it could be modified later in meetings with creditors, and then approved by the judge.
"My sense is the unsecured creditors want to get as much as they can, but you also have to deal with the realities of this case," said Taddonio, the Wells Fargo attorney. "It's a matter of getting the best possible deal out there."
New York-based Matlin manages a reported $3 billion investment fund. Known on Wall Street as a vulture fund, it specializes in buying distressed companies.
Matlin would receive a $3.6 million payment from ATA and take control of the airline through a $100 million cash injection. Matlin in turn would get the bulk of the new stock to be issued by ATA when it comes out of bankruptcy.
Committee claims investor, Southwest plan to carve up airline
By Ted Evanoff
[email protected]
November 23, 2005
ATA Airlines struggled for months to find enough cash to stay in the air. This fall, the bankrupt Indianapolis carrier finally found a potential investor. Now, major ATA creditors contend they and the airline were "hoodwinked."
ATA's committee of unsecured creditors claims that the potential investor, Matlin Patterson Global Opportunities Partners II, and ATA business partner Southwest Airlines have quietly worked out a deal to cheaply carve up ATA.
The claim was made Tuesday in a filing in federal bankruptcy court in Indianapolis. The filing points out ATA is being scaled down to a single gate at Chicago Midway, an airport where it was the leading carrier as recently as last year. Southwest dominates the airport today.
ATA bond owners represented by Wells Fargo Bank Northwest filed similar objections to the Matlin proposal Tuesday.
Both groups want the Matlin deal shelved. U.S. Bankruptcy Judge Basil Lorch III is expected to convene a hearing today on the matter in New Albany.
While the objections could delay the Matlin deal, it's not clear whether they would scuttle the investment altogether.
If that happened, ATA might be forced to renew the search for cash or liquidate if it runs out money.
Creditors say ATA could bring in more money by auctioning off valuable passenger gates at Chicago Midway airport than by going forward with the Matlin proposal.
Tuesday's legal action singles out the diminished status of the airline long regarded as an Indianapolis success story. Started in 1972 in the city, the discount carrier became the nation's No. 10 carrier, employing 8,200.
But ATA entered bankruptcy Oct. 26, 2004, broken by fare wars, rising fuel prices and hefty lease payments on a new Boeing airliner fleet. It now employs 4,200.
Soon after the bankruptcy filing, Southwest emerged as a white knight. Retired Southwest executive John Denison joined ATA as chief executive, and the Dallas carrier injected cash and arranged a deal that funneled Midway travelers through both airlines.
Lately, ATA has veered from course. It's eliminating all regular Indianapolis service and would put most of its Midway gates into Southwest's control. And under the Matlin deal, it would take a narrower focus, concentrating on Hawaiian and West Coast flights and the profitable military charter service.
"If (ATA) can make a factual record that this is best possible deal they can get, then that is something the court probably would have to sign off on," said Wells Fargo attorney Gregory Taddonio of the Pittsburgh law firm Reed Smith.
However, the creditors' committee claims Matlin and Southwest froze them out of the reorganization process in "a thinly veiled attempt" to cheaply deliver ATA assets "on a silver platter" to Matlin, and almost completely drive ATA from competition with Southwest at Chicago Midway.
According to the filing, the deal was worked out in secret by Matlin and Southwest "without any participation by the committee, despite the committee's repeated requests to participate."
Matlin and Southwest, according to the filing, spun "a web" around ATA that "has somehow hoodwinked (ATA) management and professionals into believing" Matlin is ATA's only hope to avoid complete liquidation. The filing says ATA's recent proposal to scale back at Midway puzzled the creditors' committee, "despite repeated requests by the committee to understand (ATA's) dismantling of their operations at Midway, which only a year ago were touted by (ATA) and Southwest as the crown jewel of the newly revitalized ATA."
As recently as 2004, ATA commanded 14 Midway gates, more than any other carrier. Two months after the bankruptcy, Southwest and ATA worked out a complicated $113 million bailout.
Originally, Southwest got six of ATA's Midway gates, surpassing ATA as the leading carrier at Midway.
Under the Matlin plan, a second deal is in the works. Southwest would take over another four ATA gates and forgive $20 million in ATA bailout loans. Midway's owner, the city of Chicago, would get three of ATA's remaining Midway gates, leaving ATA with one gate.
Creditors claim the newly proposed Midway gate transfer and the Matlin investment were put together privately without consulting creditors, even though the legal process is supposed to give creditors a large say in a bankruptcy reorganization. A hearing has been set for Dec. 6 in bankruptcy court on the gate transfer.
In a bankruptcy, creditors are those owed money by the bankrupt firm. Bonds, which are a kind of loan, are often not repaid in full in a bankruptcy. Bond owners become unsecured creditors and often are compensated by receiving shares of new stock issued after the firm emerges from bankruptcy.
Wells Fargo claims the Matlin deal limits the bondholders to about 2 percent of the new stock to be issued, while setting aside more than 4 percent for the Air Line Pilots Association and more than 5 percent for ATA management. Matlin would get most of the remainder.
In Tuesday's filing, Wells Fargo contends the Matlin deal amounts to a reorganization plan but should be rejected by the court because it wasn't presented to creditors in a hearing. The filing says the deal is "proposing to treat unsecured creditors in an inconsistent and discriminatory manner."
Southwest officials did not return messages Tuesday seeking comment. The pilots union declined to comment. New York attorneys representing ATA's unsecured creditors committee could not be reached.
ATA issued a statement late Tuesday, saying that after an exhaustive search for investors, it reached a deal with Matlin that "carefully" considers and balances the interests of all parties. "As a result," ATA said, "the company believes it has reached a solution that provides the most equitable outcome possible."
Even if Lorch rejects the Matlin deal today, it could be modified later in meetings with creditors, and then approved by the judge.
"My sense is the unsecured creditors want to get as much as they can, but you also have to deal with the realities of this case," said Taddonio, the Wells Fargo attorney. "It's a matter of getting the best possible deal out there."
New York-based Matlin manages a reported $3 billion investment fund. Known on Wall Street as a vulture fund, it specializes in buying distressed companies.
Matlin would receive a $3.6 million payment from ATA and take control of the airline through a $100 million cash injection. Matlin in turn would get the bulk of the new stock to be issued by ATA when it comes out of bankruptcy.