Frontier Airlines to sell $80 mln convertible debentures

[RiteSideUp]

Does anyone know what this means? I'm not sure if they are raising capital or it its just some benign paperwork filing. Any thoughts?

Here is the link

debentures
Tue Nov 29, 2005 07:51 AM ET

Nov 29 (Reuters) - Frontier Airlines Inc. (FRNT.O: Quote, Profile, Research) on Tuesday said it plans to sell $80 million of convertible debentures due 2025. The company said in a statement it expects to grant the underwriters an over-allotment option to buy up to an additional $12 million of debentures. The low-cost carrier also said the interest and conversion rates and offering price are to be determined through negotiations between the company and the underwriters. (Reporting by Arpan Mukherjee in Bangalore)

 

[sluggo]

No Idea! No rumors either, that I know of. Any Ideas would be appreciated. Thanks for posting. Sluggo

 

[Peleton]

How is this for an idea....

Sell the bonds, pick up the cash, get in on the fire sale in IAD for the 319's. Drop the IDE pilots and bring the aircraft home. The extra cash would be to replace the deposits for the 8 or so additional IDE 319's due in 2006-2007.

 

[sluggo]

Impressive insight!

 

[RiteSideUp]

How many airbii does independance have?

 

[be-400xpdriver]

What about E-190's? I talked to a F9 guy and he said management was looking at getting a few.

 

[JetSpeed219]

The article I read says they might be in trouble........

http://finance.myway.com/jsp/nw/nwdt_rt_top.jsp?cat=TOPBIZ&src=202&feed=bus&section=news&news_id=bus-bau967242&date=20051129&alias=/alias/money/cm/nwhttp://finance.myway.com/jsp/nw/nwd...967242&date=20051129&alias=/alias/money/cm/nw

 

[radarlove]

Convertable debentures are debt that has an option attached for the holder to convert it into stock if the stock price hits a certain level. Strong companies often avoid these, because they have to pay out more to pay off the debt than the debt was issued for if the stock does well.

However, the conversion factor is a good sweetener if the interest rate without a covertable option is too high for the company to afford. It can often get a lower interest rate by giving debt holders the unlimited upside of a conversion right. Think of it this way, I borrow $100 bucks from you, but as part of the contract, if my stock hits $105, you can trade your $100 in debt for $105 in stock. So you get the interest payments on $100 in debt until you convert, then you get an extra 5%, so your effective interest rate could be over 10%. Good for you, bad for me, 'cause I'd rather pay just interest.

The market sure didn't like this issuance, though, the stock went down significantly. The risk factors (see "pimp-slapped" topic) listed on the offering sounded like they got together to build a war-chest right after SWA announced Denver, they sound like theyr'e going to need lots of cash, which makes the debt more risky.

We'll see, but I think the market smells blood in the water.

 

[F9 Driver]

I think the 80M is for expansion, replenishing our coffers for the coming fare wars in DEN, and for expansion.

There was a piece on CNBC this morning about how many of the airlines are stocking up their bank accounts by taking on debt. FWIW.

The articles Jetspeed posted and that Radarlove tactfully titled as “pimp slapped” quote our latest SEC filing 8K. All our SEC filings have to show the down side potential (risk) to our shareholders. They disclose everything from future possible terrorist activity to increased competition. http://biz.yahoo.com/e/051129/frnt8-k.html

I think the 80M is a good thing, and the stock sell off is a buying opportunity. I don’t see us buying anybody, but hey I’m just an airline pilot. If I ran the airline I’d be a whole lot richer!

 

[Avee8tr]

Read this:

http://wvgazette.com/section/News/2005112824