US Airways Asks Judge to Ground Pension Fund's Bid

September 25, 2002 ( - If the Retirement Systems of Alabama sees working with US Airways on its bankruptcy reorganization plan as a match made in heaven, the ailing air carrier isn't ready for any nuptials.

In fact, US Airways lawyers have turned to US Bankruptcy Judge Stephen Mitchell with allegations that the Alabama pension plan is improperly intruding on the airline’s right to negotiate with parties it chooses in order to build a proposed business reorganization plan, according to a Dow Jones story.

“The (Retirement Systems of Alabama) improperly and impermissibly is seeking this court’s imprimatur to substitute the RSA’s business judgment concerning the debtors’ plan sponsor for that of the debtors,” US Airways said in court papers with the US Bankruptcy Court in Alexandria, Virginia. Mitchell is scheduled to hold a hearing on the dispute on Thursday.

According to the Dow Jones story, the pension fund’s proposal is in direct competition with an investment proposal US Airways received before it filed for Chapter 11 on August 11.

Subject to certain conditions and higher offers, private equity firm Texas Pacific said it would make a $200 million investment in the company upon its emergence from Chapter 11 in exchange for a 38% stake and seats on a reconstituted US Airways board.

The deal will form the basis of a reorganization plan the company hopes to file by December 31.

Fund’s Proposal $40M More

The pension fund’s proposal popped up last week. The fund – which has $25 billion in assets and already owns $340 million in US Airways debt – said it would match the terms of the Texas Pacific deal but pay $40 million more and do it on a zero-fee basis.

The pension fund argued in court papers that the airline should be authorized to select the pension fund as the lead bidder to be its plan sponsor.

The pension fund said Texas Pacific stands to earn a $3.5 million fee in exchange for a $100 million DIP loan commitment, even though it elected to satisfy its commitment by guaranteeing advances made by certain other lenders, the Dow Jones story said. Texas Pacific would be entitled to a $3.75 million transaction fee if it’s declared the winner and a $7 million breakup fee if it’s not, the Dow Jones story said.

Considering these fees, and the $40 million extra provided for in its investment, the pension fund said its proposal was superior.