WASHINGTON - Trans World Airlines Inc. wants the Pension Benefit Guaranty Corp. to swap debt for equity and release collateral in what may be the key to keeping the airline airborne.
TWA is asking the PBGC, its largest creditor, to reduce its debt holdings to $100 million from $322.2 million. In exchange, the PBGC would get 10 million shares, worth about $250 million, of newly issued TWA common stock and rights to purchase 2.5 million additional shares of stock.
On Oct. 10, TWA shares closed at $2.50 on the American Stock Exchange.
But the PBGC wasn't sure at press time whether the proposal would be good for the pension plans, which are underfunded by $479 million.
"TWA's intention to create a financially solvent airline is encouraging for those who depend on it for jobs and transportation," a PBGC spokeswoman said. "The PBGC has been closely monitoring the situation. We will be reviewing TWA's restructuring plan and will discuss its implications for TWA's pensions."
At press time, the agency was meeting with TWA management as well as William Compton, president of TWA's pilots' union, to discuss the current plan.
With the debt for stock swap, TWA will try to avoid a nose dive back into bankruptcy protection, from which it emerged from last November. The restructuring would give creditors more than their current 55% ownership of the airline; employees would have no less than 30%, a TWA spokesman said. The creation of the new stock hinges on shareholder approval in November.
If TWA does not get shareholder consent, it would submit a prepackaged Chapter 11 bankruptcy plan, which would be "substantially" similar to the restructuring proposal, according to a company statement.
Currently, creditors of the St. Louis, Mo.-based airline are being asked to swap $800 million in debt for common stock. TWA currently carries $1.8 billion in debt as a result of the 1993 bankruptcy reorganization plan, the company said.
At press time, creditors were just learning about the proposal.
"They're still in a wait-and-see stage," the airline's spokesman said. "We have had some informal and some formal discussions with creditors, and we haven't had anyone turn and walk away from us."
In January 1993, TWA and the PBGC agreed to a settlement to keep the airline's underfunded pension plans alive. The two plans were underfunded on a termination basis by $1.05 billion in December 1992.
Under the agreement, former TWA owner Carl Icahn would provide TWA $200 million in financing and relinquish control of the company to the employees and creditors.
An Icahn company, Pichin Corp., has assumed the two plans and is making the minimum funding contributions of $30 million to $35 million annually, the PBGC spokeswoman said.
The annual funding is being made in part by 15-year TWA notes totaling $300 million. The notes are secured by the airline's international routes and the Kansas City, Mo., maintenance base. The balance of the payments, up to $200 million, are being paid for by another Icahn company, the PBGC spokeswoman said.
In addition to the debt for equity swap, TWA is asking the PBGC to remove the Kansas City maintenance facility from the 1992 collateral pension settlement.
"I would hope the PBGC would require considerably less collateral than what they bargained for 11/2 years ago," said Howard Denburg, an attorney with Battle Fowler, New York, who represents the International Association of Machinists.
"I'm hoping (the PBGC) would be looking at the impact of not participating in the restructuring and what that would do to jobs," Mr. Denburg said. "Their participation is critical to the equation," he added.
One source said the PBGC's concern is retaining the value of the 1993 settlement.
The PBGC "would be reluctant to go along with obtaining the shares if it didn't give them value," the source said.
"In giving up security, they'll have to get something for it. But this is not to say that there isn't a real downside possibility if (the PBGC doesn't) make any concessions."
The swap would be good for the PBGC, some sources said. That's because the alternative may be to face terminating the two plans. The 1993 settlement spells out what is to happen if the plans are terminated.
In that case, the PBGC would receive the balance on the $300 million in TWA notes in addition to annual payments totaling $240 million from Mr. Icahn's group of companies.
But PBGC officials have said in the past it is much better to work out a way to keep plans going than to terminate.
"TWA will have a much better chance (at surviving) if it has less debt," said one source, who asked not to be identified.
"There is a direct pension interest in having the company make it. If you keep flying, you fly your way out of the (pension) problem."