GPA appears to be on the brink of reaching an agreement with its rebel shareholder that would clear the way for its planned $4.5 billion (£2.8 billion) fund raising. The company refused to comment but sources close to the negotiations with the Public School Employees, Retirement System (PSERS) a Pennsylvania state pension fund, said that a deal had been struck.
PSERS is the only one of GPA's approximately 140 major creditors that has so far refused to approve the fund raising. PSERS is the holder of $42 million share of the $140 million in secured loan notes - issued by GPA in 1993.
GPA wants to securitise and sell off the leases on 230 planes to raise $4.6 million to pay down debt. The company warned last week that if it was not able to proceed with its fund raising, it faced the prospect of having to seek court protection from its creditors.
PSERS refused to give its consent unless it was compensated in some way for the fall in value of shares in GPA, which it bought prior to the companies near collapse in 1993.
PSERS is now understood to have decided to support the fund raising and has agreed to sell its shares, which are classed as second preference shares, in GPA to an undisclosed third party. GE Capital which rescued GPA three years ago, is seen as the most likely buyer. The $100 million of GPA second preference shares owned by PSERS have a market value of less than $25 million.
GPA will also pay PSERS a "fee" in regard to its $42 million in secured loan notes, according to the source. It is understood that PSERS will no longer have an exposure to GPA following the deal.
Mr John Lane, the controversial chief investment officer of PSERS, refused to confirm that agreement had been reached last night.
Any agreement would have to be structured so as to not expose GPA to a legal challenge from the holders of GPA's $1 billion in unsecured debt, which ranks ahead of the second preference shares.
Last night, a GPA official said that any deal with the fund would not leave the company liable to action from other creditors who rank higher in the order of repayment.
GPA executives and their advisers, the US merchant bank g Stanley, have been engaged in tense negotiations with PSERS over the last two weeks. Morgan Stanley is understood to have warned that the fund raising would have to be called off if agreement was not reached by today.
The fund raising is now expected to proceed bar any last minute hitches. The necessary documents are due to be filed with the US authorities. If the fund raising is successful, GPA will be in its strongest financial position for several years.
The money raised will be used to repay around $2.5 billion worth of debt which falls due in September, 1997. The securitisation should also raise around $500 million in cash for the company.
The refinancing is intended to repay GPA's 100 or so secured bank creditors in full. In addition, GPA's improved cash position would indirectly help unsecured creditors, owed about $1.2 billion and enable the company to meet repayments on a $500 million Yankee bond due in 1998. The price of GPA unsecured bonds rose by $3 to $95, yesterday on rumours that a deal was imminent.
GPA had to be rescued from collapsing under the weight of its mammoth borrowings in 1993 after it called off a planned flotation. AGE Capital bought 35 planes from GPA for $1.3 billion and acquired an option to acquire the company by 1998 for $65 million. This deadline has now been extended until 2001.
A new company, GE Capital Aviation Services, was formed to manage the fleet while ownership of the planes and the group's $5.5 billion in debt was left with GPA. Since then, GPA has been embarked on a programme of debt repayment primarily through the securitisation and sale of its planes and leases.
To date, the company has sold, assets worth $900 million, and settled litigation with McDonnell Douglas that could have cost it $600 million. It has also renegotiated bank terms and aircraft orders.
