For the LUV of Pete....$$$$=what???

[CoopDog]

Huh? Any financial experts out there able to translate this article below into plain english for me? And, for the LUV of Pete, just what the heck is a pass-through certificate? Thanks.


Reuters
Southwest Air files $695 mln debt shelf offering
Wednesday October 30, 5:22 pm ET


WASHINGTON, Oct 30 (Reuters) - Southwest Airlines Inc. (NYSE:LUV - News), the No. 7 U.S. airline, filed on Wednesday with the Securities and Exchange Commission to periodically sell up to $695 million in debt securities and pass-through certificates.

The Dallas-based company is also tacking on an extra $305 million in previously registered but unsold securities, raising the total offering to $1 billion.

It plans to use the net proceeds for general corporate purposes, which may include the repayment of debt and capital expenditures, Southwest said in its shelf registration.

Under such a filing, a company may sell securities from time to time in one or more separate offerings in amounts, at prices and on terms to be determined at the time of sale.

Southwest shares rose 2 cents to close at $14.74 on the New York Stock Exchange.

 

[Slug]

me too?

Coop

I had the exact same reaction/question. I'm a little jumpy these days I guess because I was kinda scared to ask.

Slug

 

[Yahtzee]

Pass through certificates & Gator Hating

And, for the LUV of Pete, just what the heck is a pass-through certificate? Thanks.

From http://www.investopedia.com/terms/p/passthroughcertificate.asp

Pass-Through Certificate

Definition: Fixed-income securities that represent an undivided interest in a pool of federally insured mortgages put together by the Government National Mortgage Association (Ginnie Mae).

Mortgage-backed certificates are the most common type of pass-through. In such a security homeowners' payments pass from the original bank through a government agency or investment bank to investors.

Other versions of a pass-through exist which do not involve a mortage or Ginnie Mae.

From SWA's website:

A copy of the Company's financial reports (i.e. Annual Report, SEC Form 10-K, Proxy, etc.) may be obtained without charge by writing or calling:

Southwest Airlines Co.
Investor Relations
P.O. Box 36611
Dallas, Texas 75235
Telephone: (214) 792-4908

You may be able to find more info by calling the number and asking if you're really motivated.

Back to planning for the World's Largest Outdoor Cocktail Party. Can I have a "I say it's great to be a Gator Hater"?

Yahtz

 

[Slug]

Uhh?

Yahtzee,

Unfortunately, I didn't get that either.

Slug

 

[UGApilotDAWG]

Hey Yahtzee-
Are you lucky enough to have tickets and a ride to the Cocktail Party this weekend? I don't understand all that Charles Schwab financial mumbo jumbo, but I do know toss sweep right and Belue to Scott courtesy of Vince Dooley and Larry Munson. If we win we at least clinch a tie for the division and if UT beats SC then we also win outright! Be nice to get the call for SWA class after enjoying a possible very nice bowl game!
Life is good!
Les

 

[CoopDog]

Still don't get it.....

Well I read the def. twice and I still don't get it. Now I know why I changed majors after my 2nd accounting course.

I guess the bottom line question is this: Is this a financial move by SWA to poise themselves for further expansion? (please, please, please,....)

Coop

 

[Slick]

I'm not real clear on the "pass through" certificates, but the issueing of new debt seems like a good idea for southwest.

The way I read the press release is this: Southwest has some outstanding debt, (probably in the form of previously issued bonds), and they want to borrow additional money at a lower interest rate. With the new, (and cheaper money), they can pay off the old, (more expensive money), and keep mo money in their pocket.

If that's not clear, think about it in terms of your mortgage, (assuming you own or owned a home). If you bought your house with a bank mortgage at 10% you can go to another bank later, (assuming the interest rates go down), and borrow more money at 6%. You use the cheaper 6% money to pay off the old, and more expensive 10% mortgage. You now own the same asset for less money, in the long term.

I think that's what Southwest is doing. Since the interest rates are at 30 - 40 year lows, they're borrowing more money, (in the form of bonds), and will use that money to either expand or pay off their old, and more expensive debts. It's another way of reducing your costs. And it make good financial sense to do it.

I'm not a financial expert, but I'd like to play one on t.v.

 

[Slug]

Aha!

That helps.

I plan on staying at a Holiday Inn Express next week, at which point I'll know for sure.

Slug

 

[UGApilotDAWG]

Wow-
Now it's clear as a bell - Thanks slick

 

[chase]

An explanation

I got this off of another site with an explanation from someone I respect for the financial knowledge. Hope this helps.

This is merely preemptive positioning by the company.

2003 is a very uncertain period with regards to revenues. As a result "CASH" is king, meaning the company will attempt to hold on to a fairly large cash position in our balance sheet, and use these "debt securities" to raise capital for short or long term use, rather than use our cash.

As an example, in the year 2000, I believe we bought 32 new jets that year. Amazingly, we paid for those jets with "CASH" out of our cash flow for the year. No debt was used for the purchase.

Before 9/11 we used to keep about 500 million of "CASH" on hand. Now, we typically keep about 2 billion of "CASH" on hand, because we just are certain of the predictabiliy of the revenue stram. In order to build up the 2 billion in "CASH" on hand, we had to either take on additional debt or raise additional equity.

Debt is raised through the usage of "debt securities", while equity is raised through secondary offerings.

I hope this helps.




Debt securities is SWA taking out loans like offering bonds and equity is selling our own stock?

Is that right?

Yes.

Depending upon where a corporation sits in the business cycle and their own stock valuation, either using debt or raising additional equity will be more cost effective.

With interest rates at an all time low, it is much more cost effective in raising cash through the use of "Debt Securities" than through selling stock.


___

My comments:


Overall this says the company has enough strength & support in the markets to raise this type of money. Doubtful if other airlines could do this in this type of market.

 

[Slick]

Yeah. Like I said. They're refinancing their house.

 

[Yahtzee]

Hey Yahtzee-
Are you lucky enough to have tickets and a ride to the Cocktail Party this weekend?

No, unfortuanately, we don't have tickets but we do have a ride to the fesitivities, with an ARCT at The Landing at 2100 for the second year in a row. We plan to hang out at one of the local sports bars watching ESPN, and other games prior to tailgating at the stadium. We have a mix crew of Florida & GA fans....I'm the DD so I get to witness all the stupidity, without all the headaches that will surely come on Sunday am. Are your coming down? Post Halloween at the Landing. This outta be NUTs! If you're coming down send me a PM, and you can join our crowd!

I don't understand all that Charles Schwab financial mumbo jumbo, but I do know toss sweep right and Belue to Scott courtesy of Vince Dooley and Larry Munson. If we win we at least clinch a tie for the division and if UT beats SC then we also win outright!

I just hoping for a win.

Be nice to get the call for SWA class after enjoying a possible very nice bowl game! Life is good! Les

I'm also looking forward to you guys starting and draining that overpopulated pool.


As far as the debt goes, I couldn't explain it. Heck I went to high school and college in Georiga, and currently live in MS. I'm getting dumber all the time. Coop just asked what they were. Thank God for guys like Slick who knew how to answer.

In reality, I have a degree in finance and did ok in school. I'm guessing not only are they saving money by "borrowing" at lower rate, I'm guessing they may be getting ready for an expansion. If I remember my finance courses well enough, there are tax advantages to using debt versus another stock issue. With SWA stock at about 14-15 a share, debt makes more sense right now. Pre 9/11, Microsoft had about 9 Billion in Cash....I don't think you will ever see MS pay a dividend or issue debt. They don't need to.

SWA could raise cash through a series of debt issues. Notice the wording "Under such a filing, a company may sell securities from time to time in one or more separate offerings in amounts, at prices and on terms to be determined at the time of sale."

Biggest advantage of debt to an investor versus stock...you will most likely be paid something in case a liquidation occurs. Debtholders have some priority in a liquidation, where stockholders really have no priority. Stockholders just watch their stock drop to a worthless amount before the SEC halts trading.

Just my .02. Expecting the expansion, and not a liqudation.

Yahtz

See down in Jacksonville. I'll be wearing a big red & black fro!

 

[Slug]

Collage grad

I just hoping for a win.

Spoken just like a good ole Bulldawg.




Hey Yahtzee, any reserve slots opening up there at CBM? I'm still getting the Heisman stiff arm from the mucketee-mucks (sp?).

Later

Slug

 

[Yahtzee]

Slug,

That's what hanging out in Miss for extended periods will do to you. You sure you want to come down here? Heck, isn't Tenn bad enough? Dueling banjos and all that.

Unfortunately no movement at all in the 43rd. Some guys pulled chocks and moved on earlier this year...deciding they couldn't wait forever. I put my app in last year, and didn't know guys like you already in the 340th were trying to come here. I'm the only guy in the 48th with a DOS in the system who has currently applied. I know of at least three more people who applied shortly after me, but none have a DOS in the system...all three could be available to the 43rd next spring/summer.

If it helps at all, I'm moving east. I got an offer by a unit near GA back on 1 Oct 02. They do the King's business, and I may get activated, but hey that's why I raised my hand twelve years ago. I think the 43rd would like to hire more folks, but the manning just isn't working out. It's a great unit due to the awesome folks who make it what it is and I'm gonna miss my friends in the 43rd.

To help you out, I'm trying to convince a few of the single reservists to move east with me and rent a house near the beach. That should open more slots for guys that need the CBM connection.

Hey, do you know Smock by any chance? Would you be willingly to admit it if you did? He's a good dude with really bad timing. Ask him to tell you about his bear hunting trips in Alaska.

Hope you make the next SWA class, and you make it to CBM.

Yahtz

 

[sleepy]

Hey Yahtzee-
Are you lucky enough to have tickets and a ride to the Cocktail Party this weekend? I don't understand all that Charles Schwab financial mumbo jumbo, but I do know toss sweep right and Belue to Scott courtesy of Vince Dooley and Larry Munson. If we win we at least clinch a tie for the division and if UT beats SC then we also win outright! Be nice to get the call for SWA class after enjoying a possible very nice bowl game!
Life is good!
Les

I wish I had a penny for every dusty old UGA flag that is flying around ATL right now. Well, after UF shows how over-rated you dogs are, you guy's can pack them back up until next year.

Goooooooo Cocks!

 

[Yahtzee]

Slug,

I rest my case. I'm sure you've seen this site, but if not just click on the link for a few laughs.

"When you think of Mississippi, what comes to mind? Illiteracy? Sweltering heat? Bigotry? Velvet Elvis? These are all valid responses. However, we must remember what Mississippi gives to the world of architecture. "

http://www.drbukk.com/gmhom/park.html

You can't fully appreciate this website without the sound, so turn up the volume and be glad you live somewhere else.

My personal favorite is the Buick Rivera Batmobile photo. However, the Transcamero 4x4 is a close second.

Yahtz

 

[UGApilotDAWG]

It's great to be a Gator - Hator!

and hey - I can play "Dueling Banjos" on the guitar!
(gotta do something waiting in the pool!)

I remember the good ol' days in the 80's when GEORGIA always won the cocktail party. UF had their glory with the devil coaching them and now they're human again. I am definitely not overconfident - just hope for a win. Lucky for the nasty orange team half our team is injured. The Kentucky game was the one I was worried about and we won it big in the second half. Gotta play one week at a time - kind of like this SWA rumor pool! By the way New Orleans survived both hurricanes so that's reason enough to party. We can always use some more pilots in the P-3 squadron down here so if you know someone who might be interested let me know. Hey were in MS are y'all? I actually evacuated to Meridian for the second hurricane ( they have the best food ) and an awesome lake on base for our dogs!

Les

PS- Have anyone with "the call" heard anything more than two Jan classes so far?

GO DAWGS!

 

[tredding@swa]

Finance 401....

Pass throughs are a form of mortgage securities, former post mentioned GNMA certificates (Ginni Maes) which is a great example.

"Debt Securities" are NORMALLY corporate bonds. However, they may take form as more creative forms of debt, like a preferred stock.

My guess on the pass throughs, they may sell "shares" of the jets they own - in other words - monitization - or better yet - "securitization" of an asset they have equity in, such as ~ paid for, $40 million airframes that produce income. They offer to the purchaser of such an investment the "pass through" of income as a fixed % of revenue earned on said assets.

Finance has become VERY esoteric in the last few years. Lots of MBAs at the investment bankers (Merrill, USB et al) creating "new" ways for companies to create debt & equity offerings. Most of these fall under the broad definition of "derivitives". You may remember a problem back in the early '90s where derivitives caused some level of problems in corporate finance. Most of these "new" finance opportunities are pretty clean, I would trust the SWA gurus on this one.

Bottom line - good news that SWA is looking at creative ways to get their hands on some CASH when needed!!!!

Where do I get this stuff??? 6+ yearws as investment advisor, PaineWebber - then my private practice which I closed last year to dedicate my time & efforts to my aviation career = hired by SWA!!!

Hope this makes sense, even to those DAWGS who now have dumbed down and live in MS!!! Imagine where we can take that ONE!?!?!?!

Regards - Tred

 

[PTinbound]

Yahtzee,
That was pretty funny, but really I'm more inclined to buy that trailer in HOU or DAL so I can get away from this yankee infested arctic tundra and live with some culture. ("Tell me, PT, how do you really feel?")

Now for all y'all's fananseal, financshul, er, money lesson, I'm not a smart man, but I do know what mo money can git. Just pick up open time and you make more. See?

All we have to do is go to work every day with a great, positive attitude that is contagious to others. Never say "It's not my job"
except perhaps when it comes to running an airline, in which case
we can leave that in the very capable hands of those who are leading our future airline, and who I'm sure are much smarter than I am in those areas anyway.

 

[Yahtzee]

"My Redneck Neighbor"

Back from Jacksonville. Thanks for all the support guys. (Slug and others.) Yes, Sleepy was right. Florida owns the DAWGS. The better team won. No excuses. I still had a good time, and plan to go back for more. Some of us never learn.

By the way, if you ever wondered where they find the "stars" for the Jerry Spring Show, we discovered it on our trip this weekend. The Waffle House in Jacksonville "late on Friday night" or "early" Saturday morning. Oh my! Being sober all your life has it's disadvantages....If I drank alcohol, maybe I wouldn't remember things so vividly.

PT,

If you liked the Great Mobile Homes of MS, check out "My Redneck Neighbor"

http://www.knology.net/~carlos/redneck.htm

Makes me proud of being a Georgian...NOT! My favorite photo is "Hibachi Hell" "Exhibit C"

Tred,

Thanks for being kind to me. This DAWG is leaving MS in Jan, so maybe I can regain some "smarts" after nearly four years in MS.

Best Wishes to you guys...

Yahtz

P.S. Tred, can you start a pool for the next SWA pilot interview dates like ya'll had for the poolies? I'm guessing July 14, 2003. There you go...a "interview" question in my post.