WASHINGTON - The Pension Benefit Guaranty Corp. has agreed to reduce its Trans World Airlines Inc.'s debt holdings by 32%, in an effort to keep the airline flying.
The reduction will help free up cash for the struggling airline, while protecting its two pension plans, which currently carry a $1 billion unfunded liability, a PBGC spokesman said.
St. Louis, Mo.-based TWA has asked other creditors for similar reductions to stave off bankruptcy protection, from which it emerged in November 1993; if they agree, the plan should reduce TWA's current overall debt to $1.3 billion from $1.8 billion.
The PBGC agreement would change the funding provision by exchanging 15-year notes worth $322 million with new TWA notes totaling about $244 million. Also, through 1999, TWA would only pay the interest - about $20 million - on the notes to the plans each year. Pichin Corp., a company of Carl Icahn, TWA's former chairman, will make up the difference if interest payments on the notes fall short of the plans' minimum funding requirements. The PBGC also would receive $50 million in TWA common stock.
TWA's international routes and its Kansas City, Mo., maintenance facility would remain as collateral for the notes. The agreement hinges on the approval of other TWA creditors and Mr. Icahn, which is expected before stockholders vote Jan. 30 to issue the new stock.
The restructuring would give creditors a 67% stake in the airline; employees would have no less than 30%, a TWA spokesman said.
This arrangement slightly changes the one made between the PBGC and TWA in December 1992. In that agreement, Mr. Icahn provided TWA $200 million in financing and gave control of the company to the employees and the creditors. Pichin Corp. assumed the two plans, and has been making the minimum funding contributions of $30 million to $35 million annually. In addition, annual funding has been made in part by the 15-year TWA notes. The balance of the payments, up to $200 million, have been paid for by another Icahn company, Karabu Corp.
A PBGC spokesman said the new arrangement is the best protection for the PBGC, the pension plans and the participants.
"We believe that the current proposal is a good restructuring for the company," said Howard Denburg, an attorney with Battle Fowler, New York, who represents the International Association of Machinists.
In its original proposal last October, TWA asked the PBGC to reduce its debt holdings to $100 million from $322.2 million. In return, the PBGC would have received 10 million shares, worth about $250 million of newly issued TWA common stock and rights to purchase 2.5 million additional shares of stock.
Mr. Denburg said the IAM did not expect the PBGC to completely agree with the original proposal; the current agreement works for everyone.