View from City Road: GPA running short of options

If GPA, the aircraft leasing group, had borrowed a few billions less, it would have been popped long ago into examinership, the Irish equivalent of administration. That it still stumbles along from one crisis to the next is a tribute to the determination of its bankers to see it survive, if only because they cannot afford failure of such a big borrower. Furthermore, GPA is an important outlet for the aircraft manufacturers, themselves heavily in hock to the banks.

The banks' attitude has therefore been the one consistently hopeful feature of the past six months of tortuous negotiations. But is this enough to save the company?

The banks are expected to grant GPA an extension of a waiver on loan covenants, which expires today, to allow further negotiations with GE Capital Corporation and one other unnamed party, which are interested in buying a stake in the company. The banks would accept even an outline agreement as the trigger for debt rescheduling, preceded by a bridging loan to pay debts to bondholders that start falling due in ten days.

The bondholders are the key, since if they do not get their money they can tip the company over the edge. Many are writ-happy American investors. That augurs badly for the GPA board's hopes of declaring a moratorium on all debt repayments and starting formal negotiations with the bondholders if the bridging loan is not forthcoming. A moratorium could be followed all too swiftly by examinership.

The simplest way out is a quick sale of full control to GE or the other contender, which would be bound to be followed by the resignations of several executive directors. But would any buyer want to take on all the bond debt?

A takeover would involve protracted haggling with the bondholders, who might be forced to convert part of their holdings into some form of quasi-equity. This process now looks like GPA's only hope.

Given that examinership gives a greater role to existing management than administration, it may soon become a more appealing alternative to some GPA directors. They should think very seriously about it.