funguy2 said:
Let me be clearer:
I believe HP's unrestricted cash requirement for ATSB-guaranteed loans is $100mil, and as you stated, they really need more than that, anyways.
Agreed; it would perhaps be more accurate to talk about an "unrestricted cash requirement" instead of "restricted cash" since the latter carries a specific meaning with respect to the balance sheet.
However, US's unrestricted cash requirement for ATSB-guaranteed loans, for a long time, was essentially the balance on the loan... The first (and only, to my knowledge) prepayment was triggered, if you recall, when US Airways' unrestricted cash balance fell below the amount owed (it was around $976mil, IIRC). They prepayed a certain amount ($226mil) and the new balance and required unrestricted cash was around $750mil.
Actually, I'm fairly certain it was neither the first nor the only prepayment, since the original loan was for $1,000 million (i.e. $1 billion). It was the largest prepayment and the first significant one. It was actually triggered by the issuance of a "going concern" warning by the company's auditors in connection with their 2003 10-K filing; the appearance of this warning would have put the company in violation of the covenants associated with the loan guarantee without the renegotiated terms and prepayment of $250 million made at the time.
See
US AIRWAYS AND ATSB RESTRUCTURE LOAN for more details.
The cash restrictions were as follows:
US Airways also agreed to a loan covenant that its minimum unrestricted cash balance would not fall below the lower of $700 million and the outstanding balance of the loan at each month until its “going concern paragraph†is removed, at which point the unrestricted cash covenant will be reduced to $500 million.
I believe there have been some small repayments on the loans since as well, as the outstanding balance is lower than $726 million.
After that, when approaching $750mil unrestricted cash, they filed BK2 and they negotiated to reduce the unrestricted cash requirements to get where we are today, which is some kind of weekly/monthly requirement based on management projections. Although, I thought the cash requirement being less than the loan balance was only a temporary thing... That is what generated my previous comment about the unrestricted cash requirement declining as the loan balance declines... Like everything else in this proposed transaction, it is probably subject to negotiation. The good news here is that ATSB folks are probably relatively comfortable with HP management.
Actually, the bankruptcy filing was largely due, IIRC, to a significant amount in pension contributions coming due in mid-September and October -- and I suspect it was more or less unavoidable by mid-summer, even with renegotiated contracts.
Of course, the actual bankruptcy filing itself was a violation of the loan guarantee covenants, so the renegotiated terms included the more detailed weekly cash balance requirements.
Now, I don't know what ATSB's position will be on the merged/reorganized company, but I imagine that the covenants will reflect the size of the outstanding loans. I suspect that the repayment schedule will be adjusted in some way.
