GPA faces a fresh crisis on refusal of refinance package

GPA, the Shannon based aircraft leasing group, faces a fresh financial crisis following the refusal of one preference shareholder to agree a refinancing package. The Public School Employees' Retirement System, (PSERS), a Pennsylvania state pension fund, has refused to support a plan to raise $4.5 billion (£2.83 billion) through the sale of 230 planes and their associated leases.

Mr John Tierney, the chief financial officer of GPA, said last night the company was hopeful that it could reach some agreement with PSERS over the next two weeks.

However, his comments followed a statement by GPA last night which said if agreement was not reached the company would have to withdraw the proposed package.

"There can, be no assurance that such review would not lead to GPA seeking court protection from its creditors in Ireland and other relevant jurisdictions," according to the statement.

Mr Tierney said GPA felt obliged to make the statement as much of the company's $4 billion worth of debts aid traded on the international debt markets.

PSERS is blocking the sale of the aircraft in an attempt to extract a better deal for itself under the continuing GPA restructuring. The pension fund is the only party that has yet to give its consent to the securitisation which needs the approval of institutions owed money by GPA as well as the operators who have leased the planes being sold.

The deal also requires the approval of holders of GPA loan notes. PSERS is unique among the preference shareholders in GPA in that it also holds loan notes. As well as holding $42 million worth of secured loan notes, it also has $100 million worth of preference shares.

The pension hind is refusing to give its consent as a holder of the loan notes in order to extract a better deal for its preference shares. One possibility is that GE Capital or another GPA shareholder may buy them.

GPA was rescued from the brink of collapse under the weight of its mammoth borrowings in 1993 by GE Capital. GPA was split into two companies, with the management of the fleet transferred to a new company GECAS and fleet ownership and debts of over $5.5 billion left with GPA.

Since the restructuring, GPA has embarked on a programme of debt reduction primarily through the sale of its planes and their associated leases. The securitisation being blocked by PSERS is the latest and most significant part of this programme.

GPA plans to raise $4.5 billion through the securitisation of the 230 aircraft and associated leases. The money will be used to repay around $2.5 billion of debt which falls due in September 1997, and other secured loans. The deal will also raise around $500 million in cash for GPA.

To date, GPA has received approval for the securitisation from over 100 financial institutions including commercial banks, mutual funds and hedge funds that hold GPA debt.

The company also claims to have consent from the operators of the leased aircraft and said yesterday that it continued to work with the rating agencies to achieve a satisfactory credit rating for the securitisation.

As part of the deal, the holders of $139 million in secured loan notes issued in 1993, including PSERS, have to agree to the notes being refinanced on the same terms as the bank debt and to modify the existing arrangements in relation to the options and conversion rights held by GECAS on GPA's ordinary share capital.

Under the terms of the deal, the expiry date of GE Capital's option to take control of GPA will be extended from 1998 to 2001.