Virgin America in the news

[Andy]

Again, deciphering an IPO is way above my pay grade regarding how the company will be valued, as I believe only a portion of the company may be offered. Post IPO however, two things from the S1 stood out (if I read it correctly); first, the only debt remaining will be a $50m note, and second, the cc companies will release $100m in hold-back monies back to VA. I believe I read Virgin Group intends to provide a letter of credit to satisfy the cc companies, should VA default.

PMFJI, but since VX is about to IPO, I wanted to make sure I comment on the above statement.

Pay particular attention to the term 'Related Party Notes'. Those are interest bearing debt that is convertible to stock at various prices. They are written as warrants, and there is currently ~$725 million in Related Party Notes.

Read the Capitalization section of the S-1 closely.
The IPO will go out at $23/sh, allowing VX to pay down $157M in Related Party Notes. That still leaves just under $570M of interest bearing debt on the balance sheet.
The Pro Forma column assumes all warrants have been executed, which would result in severe shareholder dilution.

The $100M in credit card holdback, released after Virgin Group provides a Letter of Credit Facility, will go to paying off more of those Related Party Notes so VX will have $470M of interest bearing debt.

However, the Virgin Group is charging VX $5M/yr for the Letter of Credit facility so VX is still paying money each year - it just won't show up on the balance sheet as interest on debt.

With oil prices dropping, the IPO will probably do OK (VX was 38% hedged for the following 12 mos from 30Sep14). The IPO will be priced at $23/sh and IPOs are priced to rise in initial trading. I wouldn't be surprised to see the stock rise to $30+ in the first few months.

I would, however, urge extreme caution as end of the 180 day lockup period approaches. There are a lot of warrants with exercise prices below $1, and Branson has a big incentive to dump stock on US investors so that he can exercise warrants and still remain below foreign ownership requirements. Branson took major haircuts on the two restructurings prior to the IPO.

S-1 link: http://www.nasdaq.com/markets/ipos/filing.ashx?filingid=9846757#D761206DS1A_HTM_TOC761206_8

 

[tzskipper]

From the prospectus

Fwiw:

We anticipate that, after consummation of the transactions contemplated by the 2014 Recapitalization
Agreement and upon the closing of this offering, only the Post-IPO Note, and none of the Related-Party Notes or
the Related-Party Warrants, would remain outstanding, and each of our issued and outstanding share of our
convertible preferred stock and Class A, Class A-1, Class B, Class C and Class G common stock would be
converted into one share of common stock. Based on an assumed initial public offering price of $22.50 per share
(the midpoint of the price range set forth on the cover of this prospectus), we do not anticipate that any warrants
to purchase common stock will be outstanding upon the closing of this offering.

 

[Andy]

TZ Skipper, thanks for the citing from the S-1; I found it buried. I'd have to dig into how they're dealing with oversubscriptions and stock available for sale for the IPO, but I question how a company that does a $307M IPO can extinguish $725M in debt. The math doesn't add up.
We'll have to wait for Q4 numbers before we can conclusively state how much debt the post-IPO company is carrying. When options are available (and as long as they're not too pricey), I plan on buying some puts, preferably ones dated after mid-May 2015.

The stock's had a nice move up on the IPO (as expected) but if it closes close to flat (where it's now headed) would not be a good sign of things to come.

 

[tzskipper]

The debt has been converted to equity, since it was investor debt plus interest?

Pro Forma post IPO long term debt was estimated in the prospectus as being $117,926m. Post IPO cash and cash equivalents of $398,978m.

I would have cut and pasted, but the margins/columns get screwed up...

 

[Andy]

No, some of the warrants that convert from debt to equity have a conversion rate in excess of $100/share. And there would be massive shareholder dilution from the conversions.

Edit: Pro Forma shows 100% debt to equity conversion. That's not going to happen. IMHO, the S-1 threads a very thin needle on legalities - it's extremely deceptive.

 

[Flopgut]

Cool. I've had the pleasure of working with a handful of ex-ATA guys at my former carrier - one went on to VA as well.

For all that happened to those guys with the collapse of their company, they took their lumps pretty well - all were a class act.

Class acts, indeed.

And just think, the ATA guys could have been stapled to the America West list and told how lucky they are to be Westicles. Because America West saves everybody. Just ask a westicle.

This guy and his contemporaries^^^^Not so much

 

[Movin' on up!]

Any ideas as to when VA will hire? I heard soon after the IPO but....

 

[waveflyer]

Speaking of the IPO. I HEARD THE PILOTS GOT F^CKED ON THAT.....

Truth?

 

[DCAA320]

Any ideas as to when VA will hire? I heard soon after the IPO but....

Well no huge expansion plans so they will hire as attrition increases.

 

[LearLove]

They saved your a----

FYI I don't work at the new American

No. LOA93 and the sacrifices made by LUS pilots, FAs, mechanics, ramp and gate agents, ect. saved us. And not to forget the pain the WO groups (ALG and PDT- up yours PSA) experienced as well.

 

[pilotpm]

Speaking of the IPO. I HEARD THE PILOTS GOT F^CKED ON THAT.....

Truth?

Very true! The good news is we very little fence sitters anymore.

 

[HDA]

Speaking of the IPO. I HEARD THE PILOTS GOT F^CKED ON THAT.....

Truth?

I would disagree that the pilots got "f^cked" in the IPO. There was never anything in writing from the company as to how the IPO was going to pay out. The hopes and wishes of the pilot group turned out to be just a little better than the crap in their other hand. The officers of the company had their IPO proceeds on an employment contract. The pilots did not so they got whatever the officers and BOD deemed they would get.
So no, they did not get f^cked. I hope they learned a big fat lesson. I am sure most of the pilot group at VA is done with the red koolaid, it had a 7 year shelf life.

 

[Andy]

I would disagree that the pilots got "f^cked" in the IPO. There was never anything in writing from the company as to how the IPO was going to pay out. The hopes and wishes of the pilot group turned out to be just a little better than the crap in their other hand. The officers of the company had their IPO proceeds on an employment contract. The pilots did not so they got whatever the officers and BOD deemed they would get.
So no, they did not get f^cked. I hope they learned a big fat lesson. I am sure most of the pilot group at VA is done with the red koolaid, it had a 7 year shelf life.

I read most of VX's financial information out there prior to the two restructurings and the employees were allotted a fairly large chunk of the company stock. It appears that after the restructurings, the employee portion of the company stock took a HUGE haircut. I don't know how public that information was, but I was shocked when I saw how poorly the employees fared on the IPO.

VX's management would make Lorenzo and Smisek proud.

 

[Tomct]

HDA....you can stick your smart AZZ remark right up your own AZZ!!

We got screwed and the company is going to pay for it....ROYALLY!!

 

[waveflyer]

HDA....you can stick your smart AZZ remark right up your own AZZ!!

We got screwed and the company is going to pay for it....ROYALLY!!

A bit late for the tough talk.

Would've been better for pilots not to be so damn naive in the first place.

I signed a contract to rent a table saw for a day. Every rental car I've ever bought and gym membership and cell phone I've ever had. I signed a contract bigger than the bible to buy my first house. Yet there are still pilots who operate without one, even though their workplace is the single largest financial impact of their lives and what they use to pay for every other contract they sign. I don't get that strictly as a matter of business.

It's inexcusably dumb for any group that chooses this as a profession.

Why does it take getting f^cked really hard to come to the same conclusion that pilot groups worldwide have eventually come to over the last 100 years?
There is a century of history to draw from. Generations of experience, and you want to reinvent the wheel?? This time it's different??

Get to it. I support your union drive. Make them pay, but don't tell me. I'm from Missourri on these kinds of things.

I'm very sorry that you all got f^cked. Unfortunately, I also have enough friends over there to know that VA has put the tip in more than a few times. must be so frustrating for those of you who knew better all along.