Capital Markets

ExpressJet Revs Reverse Split for Takeoff

Its move to a 1-for-10 distribution is intended to keep it on the Big Board, and avoid a forced repurchase of notes.
Stephen TaubAugust 25, 2008

ExpressJet Holdings Inc., looking to remain on the Big Board, is asking its shareholders to approve a 1-for-10 reverse stock split at a special meeting scheduled for Oct. 1.

The move by the company, which operates regional flights for Continental Airlines, would reduce the number of authorized shares of common stock from 400 million to 150 million shares.

ExpressJet noted that on July 18, the New York Stock Exchange warned the company that the trading price of its stock was below the minimum required by NYSE’s continued listing standards, because the average per share closing price over a consecutive 30-trading day period was less than $1. The exchange gave the company six months to bring the 30-trading day average closing price above a buck.

If ExpressJet is unable to lift the stock price to the required level, the NYSE said, it will begin suspension and delisting procedures. “Although the NYSE has provided a six-month cure period to remedy this situation, the NYSE has informed us that it also has the discretion to delist our shares at any time if they trade at sustained levels that are considered to be abnormally low,” the company said in proxy material for the meeting. The closing price of its stock on Aug. 20 was $0.25 a share, and the consecutive 30 trading-day average closing price was $0.32.

The reverse stock split will also reduce certain costs, such as NYSE listing fees, and make its stock more attractive to a broader range of institutional and other investors, the company said in a proxy filing.

There may be a more overriding reason for the reverse split, however. The company conceded in its filing that if the stock were delisted from the NYSE, it also would constitute a “designated event” under the indenture governing its 11.25 percent convertible notes due 2023. This would mean holders of the notes would have the right to require the company to repurchase all or a portion of their notes in cash at par plus accrued and unpaid interest, if any.

The company warned that if all noteholders exercised their right to require it to repurchase the notes, the company would be required to plunk down $68.5 million in principal in cash, plus accrued interest. However, it does not have the money to pay this potential bill.

“If a ‘designated event’ occurs, we cannot provide assurance that the company will have sufficient cash available to satisfy any such repurchase of notes,” it conceded. “Our inability to repurchase the notes for cash would result in an event of default under the indenture.”

ExpressJet, which lost $31.7 million in the second quarte, r has been exploring strategic possibilities including a possible sale, the Associated Press noted in an article about the reverse split. The company rejected an unsolicited takeover offer from SkyWest in April.