Frontier Airlines to sell $80 mln convertible debentures

[Fox2]

I suspect the market is responding to Frontier's use of convertable debentures to raise cash (as opposed to other less costly methods). This is a more costly method of raising cash since, as RadarLove indicated, it has a higher potential interest charge to the issuer. The reduction in stock price reflects the potential for stock dilution should these notes be converted to stock upon the occurence of the specified event.

BTW, the contingent event may be a default on interest payments, not simply a particular strike price. This may be what the market is concerned with in pricing Frontier stock.

Sounds like EMH is well at work!

 

[radarlove]

BTW, the contingent event may be a default on interest payments, not simply a particular strike price. This may be what the market is concerned with in pricing Frontier stock.

Sounds like EMH is well at work!

Good point, but I doubt the convertable will be of much value if they start missing interest payments. If that were to happen, the holders would like to stay secured, not convert to very low priced stock.

But you're right about the market taking a hard look at how far they had to go to get cash.

 

[RiteSideUp]

Wow, that was quick. I guess this means more hiring! WooHoo!

Link to article

Frontier Announces Closing of Convertible Debentures Offering and Underwriters` Exercise of Over-allotment Option

December 07, 2005 16:30:34 (ET)



DENVER, Dec 07, 2005 /PRNewswire-FirstCall via COMTEX/ -- Frontier Airlines, Inc. (FRNT, Trade) today announced that it has closed its previously-announced public offering of 5% Convertible Debentures due 2025. Frontier sold a total of $92 million in aggregate principal amount of the debentures, including $12 million sold pursuant to the underwriters' exercise in full of their over-allotment option. The debentures are convertible into Frontier common stock at a conversion premium of 25% over the closing price of Frontier's common stock as of the pricing date, subject to adjustment.
Frontier may redeem all or some of the debentures for cash at any time on or after December 20, 2010 at a redemption price equal to the principal amount of the debentures plus accrued and unpaid interest, if any, to the redemption date. Holders may require Frontier to repurchase the debentures on December 15, 2010, 2015 or 2020 or upon the occurrence of certain designated events at a repurchase price equal to the principal amount of the debentures plus accrued and unpaid interest, if any, to the repurchase date.
Frontier plans to use the net proceeds from the offering, which will be approximately $88.7 million, to fund working capital and capital expenditures, including capital expenditures related to the purchase and financing of aircraft and expansion of its operations.
Morgan Stanley acted as sole bookrunning manager for the offering, with Citigroup Global Markets Inc. acting as co-manager. A copy of the prospectus supplement and accompanying prospectus relating to the offering may be obtained from the offices of Morgan Stanley & Co. Incorporated, 1585 Broadway, New York, NY 10036. A registration statement relating to these securities has been filed with the Securities and Exchange Commission. This press release shall not constitute an offer to sell or a solicitation of an offer to buy, nor shall there be any sale of, these securities in any state or jurisdiction in which such an offer, solicitation or sale would be unlawful prior to registration or qualification under the securities laws of any such state or jurisdiction.