AMR takes flight on first quarter financial guidance; ACE Aviation trading to begin Thursday morning

By Sara Rosenberg

New York, March 30 - Airlines lifted off on Wednesday - with AMR Corp. the most noticeable gainer as it released positive financial guidance for the first quarter. Meanwhile, ACE Aviation Holdings Inc.'s newly priced convertibles won't begin trading until Thursday morning because paperwork wasn't received until market close.

AMR, parent company to American Airlines Inc., said that its mainline unit revenue is expected to increase between 3.5% to 4.5% year over year and consolidated first quarter unit revenue is expected to increase between 2.9% to 3.9% year over year for the first quarter, in a filing with the Securities and Exchange Commission that came out after the close Tuesday.

As for first quarter costs, American gave mainline cost guidance in line with prior guidance at 10.0 cents; consolidated cost guidance was in line with prior guidance at 10.5 cents.

The Fort Worth, Tex.-based airline anticipates ending the first quarter with a cash and short-term investment balance well over $3 billion, including approximately $500 million in restricted cash and short-term investments.

These financials made the company's convertibles and stock sit up and take notice.

The company's 4½% convertibles due 2024 were quoted at 73.9127 bid, 74.9127 offered at the close Wednesday, nearly five points better than 69.0714 bid, 70.0714 offered at the close Tuesday, according to one trader.

The 4¼% convertible due 2023 was quoted at 83.8117 bid, 84.0617 at the close Wednesday, 6½ points higher than 77.3296 bid, 78.3296 offered at the close Tuesday, the trader added.

According to a second trader, AMR's 4½% convertible was quoted around 73¼ versus a stock price of $10.90 and the 4¼% was quoted around 83¼ versus a stock price of $10.90.

The stock closed at $11.03, up $1.10 or 11.08% on the day.

Also helping matters was Merrill Lynch's upgrade of the company's stock to buy from neutral on Wednesday.

Delta buoyed by AMR

Meanwhile, Delta Air Lines, spurred on by AMR's positive news, saw a slight uptick in its convertibles as well, with the 8% note due 2023 quoted around 41½ bid, 42½ offered, up about a quarter of a point on the day, a trader added.

According to a second trader, Delta's 8% was quoted at 42 bid, 43 offered at Wednesday's close, unchanged on the day, while the 2.88% convertible due 2024 was up slightly at 39.5484 bid, 41.5484 offered compared to 39.1803 bid, 41.1803 offered at the close Tuesday.

Delta's stock closed at $4.15, up $0.05 or 1/22% on the day.

Recently there has been talk floating around the market that the Atlanta-based airline might be planning a third convertible offering. But as was the case on Tuesday, no solid news surfaced on Wednesday about the rumored deal, one trader added.

Market shrugs off some weight

Overall the convertibles market seemed not quite as "heavy" on Wednesday when compared to Tuesday - a session when everything seemed to be down one to two points, according to a sell-side source.

"With oil prices retreating and stocks going the other way, the market felt better," a second source said in agreement.

ACE Aviation trading to begin Thursday

Air Canada parent ACE Aviation Holdings Inc.'s C$300 million offering of 30-year convertible senior notes, which priced after the close Tuesday, won't begin trading until Thursday morning but are expected to trade up first thing based on the company's Wednesday stock performance .

"It didn't trade. Won't trade till tomorrow morning since it wasn't receipted by the Securities [Canadian Depositary for Securities] until 4 p.m.," a market source said.

"The stock is up a buck today so [the convertible] should trade up tomorrow morning. It should trade above par," the source added.

ACE's stock closed the day at $38.00, up $1.10 or 2.98%.

The deal, which was upsized from C$250 million, priced at par to yield 4.25% with a 30% initial conversion premium.

The Rule 144A offering priced at the low end of yield guidance, which was 4.25% to 4.75%, and came at a more aggressive premium than expected since guidance was only in the 22.5% to 27.5% range.

In addition, ACE Aviation sold 11.35 million class A variable voting shares and class B voting shares at a price of $37 per share for gross proceeds of C$420 million. The stock sale was upsized from C$350 million.

"Both tranches - the common and the convertible - were upsized. Both were heavily oversubscribed. The convert was multiply oversubscribed and the common was four or five times oversubscribed. It was a highly successful offering," the market source said.

And, because both deals were increased, the greenshoe on both offerings was decreased to 10% from 15%, the source added.

RBC Dominion Securities Inc., Merrill Lynch Canada Inc. and BMO Nesbitt Burns Inc. were joint bookrunners of the deal, which was sold in Canada and the United States. Co-managers were CIBC World Markets Inc., Citigroup Global Markets Canada Inc., Deutsche Bank Securities Ltd., TD Securities Inc. and Genuity Capital Markets.

Proceeds from the convertibles and the shares will be used to refinance the C$540 million credit facility from GE Capital Corp. used as bankruptcy exit financing last September.

"We are extremely pleased at the success of the equity and senior notes offerings," said Robert Milton, chairman, president and chief executive officer of ACE Aviation, in a company news release. "This is clearly a reflection that the capital markets share our confidence in the position of the company going forward."

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