Airtran 2001 Annual Report Download - page 32

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We entered into an amended and restated financing commitment with Boeing capital services Corporation (Boeing Capital)
on
March 22, 2001,
and aseries
of
definitive agreements
on
April 12, 2001, in order to refinance our
10:.1%
($150.0 million) senior notes and AirTran Airways, lnc.'s
10~%
($80.0 million) senior secured notes due April 2001 (collectively, the Existing Notes), and to provide additional liquidity. The cash flow generated from
the Boeing Capital transactions, together with internally generated funds, was used to retire the Existing Notes at maturity. The components
of
the
refinancing are as follows:
(In
thousands)
11.27% Senior secured notes
of
AirTran Airways, Inc. due
2008
13.00% Subordinated notes
of
AirTran Holdings, Inc. due
2009
7.75% Convertible notes
of
AirTran Holdings, Inc. due
2009
$166,400
17,500
17,500
$201,400
Under the new senior secured notes issued by our operating subsidiary, AirTran Airways, Inc. (AirTran Airways), principal payments
of
approximately
$3.3 million plus interest are due and payable semiannually.
In
addition, there
are
certain mandatory prepayment events, including a
$3.1
million pre-
payment upon the consummation
of
each of
11
sale-leaseback transactions for B717 aircraft. During the year ended December
31,2001,11
prepay-
ments occurred. The
new
senior secured notes are secured
by
substantially all
of
the assets
of
AirTran Airways not previously encumbered, and are
noncallable for four years. In the fifth
year,
the senior secured notes may
be
prepaid at apremium
of
4percent and in the sixth year at apremium
of
2percent. Contemporaneously with the issuance
of
the new senior secured notes,
we
issued detachable warrants to Boeing capital for the purchase
of
three million shares
of
our
common
stock at $4.51 per share. The warrants have an estimated value
of
812.3 million and expire in
fIVe
years. This
amount will
be
amortized to interest expense over the life
of
the new senior secured notes.
Under the subordinated notes, interest
is
due and payable semiannually in arrears, and no principal payments are due prior to maturity
in
2009,
except for mandatory prepayments equal to 25 percent
of
AirTran Airways' net income (whicll, subject to applicable law, AirTran Airways
is
required
to dividend to us
in
cash on aquarterly basis for payment to the lender). During the third quarter
of
2001, we paid $3.3 million
in
principal on the
subordinated notes in accordance with the requirements to pay
25
percent
of
AirTran Airways' net income from the second quarter.
The convertible notes bear ahigher rate
of
interest, specifically 12.27 percent if
our
average
common
stock price during acalendar month
is
below
$6.42. This contingent interest feature is considered an embedded derivative under SFAS 133 and had no value at December
31,
2001. Quarterly
valuations will be made and recorded, if necessary,
10
reflect the derivative's fair value. Interest
is
payable semiannually in arrears. The notes are
convertible at any time into approximately 3.2 million shares
of
our
common
stock. This conversion rate represents abeneficial conversion feature
valued at $5.6 million. This amount will be amortized to interest expense over the life
of
the convertible notes, or sooner upon conversion. We are
able to require Boeing Capital's conversion of the notes under certain circumstances.
During the third quarter
of
2001, 80eing Capital exercised approximately two-thirds
of
tf1eir
conversion rights resulting in adecrease of $12 million
of
principal
on
the 7.75% Convertible Notes.
In
connection with the conversion,
we
issued approximately 2.2 million shares
of
our common stock
to Boeing Capital.
In
accordance with generally accepted accounting principles,
we
expensed S3.8 million
of
the
debt
discount and
SO.5
million
of
debt issuance costs. These amounts are shown
on
the Consolidated Statements
of
Operations as
~Other
(Income) Expense-Convertible debt
discount amortization."
The subordinated notes and convertible notes are secured by:
(1)
apledge
of
all
of
our rights under the 8717 aircraft purchase agreement with the
McDonnell Douglas Corporation
(an
affiliate of Boeing Capital), and
(2)
asubordinated lien on the collateral securing the new senior secLlred notes.
TIle notes contain certain covenants, including limitations on additional indebtedness, restrictions on transactions with subsidiaries and limitations on
asset disposals. We are
in
compliance with these requirements.
During the last quarter
of
2000,
we
financed the acquisition
of
three 8717 aircraft with promissory notes from Boeing. Subsequent to December
31,
2000, these notes were
repak1
through the sale
and
leaseback
of
the three 87175. Accordingly, these notes were classified as long-term
debt
at
o.c..nber31,2ooo.
During 2000. we entered into capital lease agreements for various capital assets (see Note
8).
Substantially
all
of
our assets serve as collateral on the aforementioned
debt
agreements.