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Pinnacle Airlines Flight From Auction Rate Costs $16 Million

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By: Dunstan McNichol | August 30, 2009

Aug. 31 (Bloomberg) -- Pinnacle Airlines Corp., which operated the Continental Connection flight that crashed near Buffalo, New York, on Feb. 12, took a loss to sell the auction- rate securities that made up most of its invested cash, according to an Aug. 24 Securities and Exchange Commission filing.

Redeeming the securities was critical to raising money Pinnacle needs to meet a Feb. 15, 2010, call on $109 million in 3.25 percent notes due 2025, Peter Hunt, Pinnacle’s chief financial officer, had told analysts during an Aug. 7 conference call.

“It’s an important step,” Pinnacle spokesman Joe Williams said in a telephone interview from Pinnacle’s Memphis, Tennessee headquarters on Aug. 28. “It goes a long way toward meeting that $109 million note.”

Pinnacle received $112 million from Citigroup Global Markets Inc. for its $128 million auction-rate portfolio, according to Williams. The $16 million loss amounted to a 12.5 percent discount. The deal allows Pinnacle to buy the securities back at the same discount anytime during the next three years, Williams said.

“We are pleased to have been able to provide a liquidity solution to our client,” said an e-mailed statement from Danielle Romero-Apsilos, a spokeswoman for Citigroup, which sold Pinnacle the auction-rate securities.

Average Loss

During the second quarter of this year, 29 publicly traded companies sold out of the auction-rate market at losses that ranged from 60 percent to 80 percent, according to Pluris Valuation Advisors, a New York firm that specializes in illiquid assets.

Pinnacle shares closed $6.85 per share on Aug. 28, up 2 cents. The stock traded as high as $7.49 per share on Aug. 24 after reaching its 12-month low of 97 cents on March 5. The company on Aug. 7 reported net income of $6 million, or 33 cents per share, on revenue of $211.3 million for the three months ended June 30.

The plane crash near Buffalo, involving a Continental flight operated by Pinnacle’s Colgan Air Inc. unit, killed all 49 passengers and crew members aboard and one person on the ground. It prompted congressional hearings on the pay and working conditions of pilots at Pinnacle and other regional airlines.

Pinnacle is the parent company of Pinnacle Airlines Inc. and Colgan Air. Pinnacle operates 188 regional planes for Delta Air Lines Inc., Continental Airlines Inc., US Airways Group Inc. and United Air Lines Inc.