Braniff Expects to Default on Payments to Creditors
Braniff Inc. acknowledged in a quarterly report released Wednesday by the Securities and Exchange Commission that the company will likely default on payments to unsecured creditors and not make distributions to stockholders.
Braniff Inc., the Orlando, Fla.-based parent company for Braniff Airlines, filed for Chapter 11 bankruptcy protection last fall, and began liquidating assets to cover its $300 million in debts.
But with the sale of its last major asset--the rights to buy 74 Airbus Industrie A-320 planes--Braniff is conceding most of its creditors will not be paid and its shareholders will not receive distributions.
“It is not presently anticipated that the plan or reorganization will provide for substantial payment of the company’s unsecured liabilities or of any distributions to equity holders,” the SEC filing said.
The statement in the filing was confirmed by Joel Shapiro, an attorney with Blank, Rome, Comisky & McCauley in Philadelphia, a law firm representing Braniff.
The filing is likely to mean that $100 million of Braniff junk bonds, whose holders include Drexel Burnham Lambert Inc., Connecticut National Bank of Hartford, and Citizens & Southern National Bank in Atlanta, will not be repaid. Also in jeopardy are debts held by Braniff’s unsecured creditors, which include Dalfort Corp. of Dallas.
David Levine, an attorney with the Miami law firm McDermott, Will & Emery, which is representing Braniff’s bondholders committee, declined comment on the development.
Under the U.S. Bankruptcy Code, Braniff’s remaining funds will first be used to pay administrative and legal fees, post-petition claims by landlords, leasing obligations, taxes and back salaries for employees. Any remaining funds will go to creditors and stockholders.
But the initial payments are expected to fully deplete the $48 million that Braniff will receive from Orix Corp of Tokyo for its rights to the Airbus planes, a deal announced June 14. Braniff received a total of $62 million in the transaction, but $14.2 million will be paid to Airbus for outstanding debts.
Except for some spare parts, Braniff has no other remaining assets, although routine investigations could theoretically bring in additional funds for creditors.
