Rival Bid for USAirways

DB Cooper

Member
Aug 20, 2002
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Seat 18C
www.usaviation.com
Dow Jones Business News
US Airways Receives Rival Bid From Alabama Pension Fund
Thursday September 19, 12:22 am ET
Alabama''s public-employee pension fund offered to invest $240 million for a 37.5% stake in a restructured US Airways Group , topping an offer made in August by private-equity firm Texas Pacific Group, Thursday''s Wall Street Journal reported.


The rival offer, which was sent in a letter to US Airways President David Siegel yesterday and is contained in documents being filed today in federal bankruptcy court in Alexandria, Va., could spark a bidding war for effective control of US Air, the seventh-largest U.S. airline.
The Retirement System of Alabama, known for its colorful investing style under its longtime head, David Bronner, owns about $340 million in US Airways debt that the airline used to finance the purchase of airplanes and equipment. It said its offer was fairer to shareholders and that bidding provisions contained in Texas Pacific''s proposal hardly create a level playing field.
The biggest attraction to me was the great job that David (Siegel) has done getting US Air from where it was to all the progress it has made, Mr. Bronner said in an interview. He said the Alabama offer is a much fairer deal to the employees, creditors and customers as well.
A spokesman for Texas Pacific declined to comment. US Airways also didn''t have any comment.
US Airways, which listed assets of $7.81 billion and liabilities of $7.83 billion, was the first of the nation''s largest airlines to file for Chapter 11 bankruptcy court protection since the Sept. 11 terrorist attacks. Airlines, battered by high labor costs, the sluggish economy and fierce price competition, have been struggling to stave off bankruptcy-court filings.
The Retirement Systems of Alabama, which has $25 billion in assets, said it would pay 20% more than Texas Pacific Group and wouldn''t request any of the transaction fees that Texas Pacific requested as part of its offer made in August. In the filing, the pension fund says its offer topped Texas Pacific''s by $50 million because it would provide an additional $40 million to investors and save $10 million by forgoing fees that Texas Pacific had requested. Alabama''s offer would adhere to the other terms in the Texas Pacific agreement.
Texas Pacific, headed by David Bonderman, agreed to invest $200 million for a 37.5% stake in US Airways as part of a debtor-in-possession financing agreement arranged when US Airways filed for bankruptcy-court protection on Aug. 11. Texas Pacific also would get five of the 13 US Air board seats.
Wall Street Journal Staff Reporter Kara Scannell contributed to this report.
 
It was anticipated that US Airways would receive other offers from investors to be the equity plan sponsor.

The bankruptcy court has scheduled the second Omnibus Hearing for September 26 with major agenda items the final approval of the TPG, CSFB, and BOA debtor-in-possession financing, final approval for the TPG equity investment, and bidding procedures for the equity plan sponsor that now will include the State of Alabama.

The State of Alabama Retirement Fund recently had a significant number of F-100s involuntarily returned to the investor when Judge Mitchell abrogated the EETCs.

From my perspective, this offer is not good news for employees and the timing of the offer, the same day as the CWA and IAM-M results, was not coincidental.

Chip
 
Chip, you can't say what the Alabama fund would be bad for employees. I'm sure they'd let Siegel continue to run the place, just as Bondo would.

The fact is that TPG made a lowball offer, and it's good for U that someone wants to pay more. U (and the creditors) should get a fair value, and I'm sure the judge will make sure that happens. After all, this means millions more for U to work with after bankruptcy, right?
 
Just one more point...I expect TPG to positively react and the company as the debtor-in-possession to have a significant say in whom is the equity investor.

TPG's turnaround firm has a proven turnaround track record, especially in the airline industry. David Bronner and The Retirement System of Alabama have no turnaround experience and their motivation is transparent, considering they were one of the major reasons the Board elected to file for a formal reorganization after Bronner would not provide F-100 lease relief.

Chip
 
 
I think your going to see others also try to step up to the plate ...but the timing may be lucky for U in that the capital market for airlines has dried up and the normal players may not find the operating cash for the deal...My question... Is the DIP financing tied specifically to the TPG bid or has that been negotiated seperately...meaning it's not just the bid amount that matters but the operating capital to continue when these bids are made...The pension funds and others may not have access to those markets so it may be just a spit in the wind...Siegel has earned some clout with the process and should be able to steer us through...Fasten your seatbelt turbulance ahead...
 
Thoughts on our possible future........

Y'all will be a required part of all boarding and onboard announcements. Youse Guys will be banned.

Catering will provide grits for breakfast, catfish for lunch, and fried chicken for dinner.

USAirways vacations is required to push The Robert Trent Jones Golf Trail (also owned by the AL pension fund).

Once again the airline sponsors NASCAR. With group tours to Talladega.

Mobile AL becomes the RJ Southern hub.

Finally everyone in the company will have a pension, but at Alabama cost of living rates.
 
What really comes out is not only was this a sweet deal for Bonderman, but he was going to hedge himself by taking fees out. Those are dollars that could be used to pump up the airline. Not a very productive use of capital. Management better hope the Pension Fund doesn't get it. My guess is they have somebody in the wings to run the business. Siegel and Bonderman are too close in this deal.
 
Actually, at least TPG, CSFB and BOA were onboard to provide DIP and emergence financing BEFORE US Airways had concessionary agreements from all its' unions. They committed to US Airways before all necessary ducks were in a row. Now, granted, they could have walked away from their deal had the CWA and IAM agreements not been ratified, the fact is that they threw their hat in the ring early on when no one else was really interested.

Of course, now that US Airways has navigated one of the most difficult hurdles in their restructuring efforts, I'm sure we may see a few more suitors throw offers their way.
 
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On 9/19/2002 11:00:18 AM CSSUP wrote:

Thoughts on our possible future........

Y'all will be a required part of all boarding and onboard announcements. Youse Guys will be banned.

Catering will provide grits for breakfast, catfish for lunch, and fried chicken for dinner.

USAirways vacations is required to push The Robert Trent Jones Golf Trail (also owned by the AL pension fund).

Once again the airline sponsors NASCAR. With group tours to Talladega.

Mobile AL becomes the RJ Southern hub.

Finally everyone in the company will have a pension, but at Alabama cost of living rates.
CSSUP---you had me laughing so hard I almost fell off my chair. But you forgot the pigs feet and greens in the meals. Such a sense of humor needs not go unnoticed. You made my Dayyyyyy. Ya'll come back and see us ya hear!!

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On 9/19/2002 1:23:32 PM eolesen wrote:

..Given the financial haircut US gave to the RSA (they held EETC's on a number of aircraft which were dumped by the court), if it costs TPG more to get their hands on US Airways and cuts into Bonderman's profits, I don't think Bronner will be too upset.
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Maybe that's the reason for this bid. Looking at returns, I hardly think that a retirement fund would want ANYTHING to do with airlines. Maybe the goal here is REVENGE!
 
Chip,

No turnaround experience? From what I can tell he's turned around the economy of Alabama quite well. So, don't by any means try to underestimate David Bronner...

Regardless of the deals that Bonderman has in place, the fact that Alabama is offering 20 percent more plus no sweetheart-deal fees to pump up the cost is not something that the court can ignore. Neither can Bonderman.

Given the financial haircut US gave to the RSA (they held EETC's on a number of aircraft which were dumped by the court), if it costs TPG more to get their hands on US Airways and cuts into Bonderman's profits, I don't think Bronner will be too upset.