Alabama Fund Makes a Bid for US Airways

The Retirement System of Alabama has offered to invest $240 million for a 37.5% stake in a restructured US Airways, topping an offer made last month by private equity firm Texas Pacific Group, according to Dow Jones.

The fund, under the guidance of longtime head David Bronner, already owns about $340 million in US Airways debt that the airline used to finance the purchase of airplanes and equipment.

Regarding the new offer, the Alabama fund said its offer was fairer to shareholders and that bidding provisions contained in Texas Pacific’s proposal “hardly create a level playing field”, according to the Dow Jones report.

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The Retirement Systems of Alabama, which has $25 billion in assets, said it would pay 20% more than Texas Pacific Group and wouldn’t request any of the transaction fees (some $7.5 million to $10.5 million, including underwriting fees) contained in the offer from Texas Pacific. 

The pension fund says its offer topped Texas Pacific’s by $50 million because it would provide an additional $40 million to investors and save another $10 million by forgoing fees that Texas Pacific had requested. Otherwise, Alabama’s offer would adhere to the terms in the Texas Pacific agreement.

The offer was sent in a letter to US Airways President David Siegel on Wednesday and was being filed in federal bankruptcy court in Alexandria, Virginia.

Texas Pacific had agreed to invest $200 million for a 37.5% stake in US Airways as part of a debtor-in-possession financing agreement arranged when US Airways filed for bankruptcy-court protection on August 11.  Texas Pacific also would get five of the 13 US Air board seats.

However, the Alabama bid is likely to be challenged by Texas Pacific, led by David Bonderman, who has led restructuring efforts at Continental Airlines, helped America West emerge from bankruptcy, and who has longstanding ties with US Airways chief Siegel, who worked as the president of Continental’s regional carrier, Continental Express.

Bronner, who has been in charge of the Alabama pension system since 1973, has been at the forefront of the pensions’ nontraditional investments, according to Dow Jones.  He has a history of making investments to attract business and tourists to the state.