AirCal Plans $30-Million Offering of Preferred Stock
AirCal Inc. applied to the Securities and Exchange Commission on Wednesday to sell up to $30 million worth of preferred stock as soon as possible in an attempt to retire that part of the company’s debt that remains from the 1981 leveraged buy-out of the firm by two private investors, the Newport Beach-based airline reported.
“All they are doing is cleaning up their balance sheet by moving debt to equity,” said Jean Suits, a corporate vice president of Paine Webber Mitchell Hutchins, which has been named manager of the underwriting group that will offer the shares to the public.
AirCal’s filing proposes a public offering of 2.75 million shares of convertible exchangeable preferred stock at a price that will depend on the airline stock’s performance at the time of sale. AirCal common stock closed Wednesday at $8.75, up 25 cents from Tuesday.
By using proceeds from the stock sale to reduce its debt-to-equity ratio, AirCal expects to improve its credit rating and reduce the interest it will have to pay on future borrowings, according to Gary R. Peacock, AirCal’s vice president of finance.
Turnaround in 1984
AirCal, which suffered losses from 1981 through 1983, entered a financial turnaround in 1984. Last year’s $8.5-million profit, Peacock said, helped to bolster shareholders’ equity in the company, which increased from $27.4 million in 1983 to $36 million at the end of 1984.
The airline’s top priority, Peacock said, is to pay off $22.4 million of remaining debt that the airline incurred after real estate developers William Lyon and George Argyros bought the company in 1981 for $61.5 million. He said AirCal hopes to use any surplus revenues from the proposed stock sale to pay off about $71 million in additional corporate long-term debt.
Lyon said that if the offering is successful and the $22.4 million in debt is paid off, it would free personal assets pledged against that debt.
AirCal became a public company again with the offering of 2.5 million shares of common stock in August, 1983. The airline raised $30 million in that offering, which it also applied against the acquisition debt.
The new issue, if approved by the SEC, would be AirCal’s first offering of preferred stock. Suits said the offering is designed to attract corporate investors, who receive an 85% tax exemption on dividends from preferred stock.
Suits said that under the terms of AirCal’s prospectus, the buyers of the preferred stock could choose to convert it to common stock at an undetermined price, and the company would have the option of changing the preferred stock to convertible subordinated debentures.
