AirTran Punished for Share Offering (AAI)

AirTran Holdings, Inc. (NYSE: AAI) is being punished after the close after it announced a securities sale.  The discount air carrier plans to sell $75,000,000 in convertible senior notes due in 2016 in an underwritten registered public offering.  Concurrently with the note offering, the company plans to sell 9,000,000 shares of its common stock as well.  The company does note that neither offer is contingent upon the other.

Morgan Stanley is the sole bookrunner and Raymond James is co-manager for each offering.AirTran intends to grant the underwriters of the notes offering a 30-day option to purchase an additional $11,250,000 aggregate principal amount of the notes and an additional 1,350,000 shares of common stock to cover over-allotments.

The notes will be convertible into AirTran common stock, at the option of the holders of the notes until the business day prior to the maturity date.  AirTran said that it intends to use the net proceeds for general corporate purposes.

AirTran is expected to be profitable on a proforma basis:  Thomson Reuters expects $0.11 EPS for its September quarter and $0.08 EPS for the December quarter.

What is interesting is the reaction to the offering.  The market cap at the close today was $737.7 million based upon a $6.14 share price.  If you add the total up before the overallotment options it comes to roughly $150 million in gross proceeds, although the convertible feature of the notes does add to further dilution ultimately.  Still, we show shares down some 13% at $5.31 in the after-hours session.  In a bull market that seems like a steep punishment.

Obviously, the concern here is what price the airliner will have to sell the shares to new buyers.  With a 52-week trading range of $1.50 to $8.68, some must think a deep discount sale is coming.

JON C. OGG