- Sale for "effectively" book value, less transaction costs
- Sale of aircraft portfolio will remove $1 billion in assets and $600 million in liabilities from balance sheet (debt, maintenance reserves, etc.)
- Invested $60 million cash in portfolio
- Expect to receive $375 cash from sale, including servicing fees
- Net cash $315 million -- to be used for new aircraft purchases or stock repurchases -- 30% IRR
- Upfront $55 million charge under GAAP -- will reverse by $40 million so net $15 million charge ($15 million is ~ same as transaction costs -- banking, legal, other advisory fees)
- More detail to come in Q4 earnings and FY financials
Slides are available.
WF (Gary Leibovitz) ... asked about net spread margin ... historically high 8, low 9 range ... after sale of these high-margin assets, are you going to see decrease in net spread margin? impact on return of equity?
A: no significant deterioration ... still looking at 10% ROE for 2013
FBR (Scott Valentine) ... any cov restrictions lifted as a result of sale?
A: we don't have any cov restrictions, so nothing to lift
Q2 ... use of cash? considering shift from narrow body to wide body?
A: CEO reiterated some points from last conf call ...nothing new ... but any asset purchase has to enhance shareholder value ... alternative is further share repurchases ... Board is always balancing relative merits of new investment vs share repurchases ... stock is still undervalued
BAML (Glenn Engle) ... what revenues / pre-tax profit from disposed portfolio?
A: annual revs $130m and pre-tax profit $40m
Q2 ... question on legal structure / accounting
A: discussed cash waterfall, which mainly flows over next three years on a relatively smooth basis
Yes, the market liked this deal. But I'm unsure as to what is accomplished except to downsize the company. First, almost all planes previously sold were for MORE than book value. And any possible buyout would be for AT LEAST book.
Second, the sale was of the cream of their portfolio. What are they going to do, go out and buy more narrow bodies now? Or buybacks - they haven't helped PPS in the past.
Without the sold planes, EPS will decrease significantly.
I would still like to knw where the benefit to the company is.