Ornstein In A Corner?

Yesterday, I listed my "oops" list of airlines on the verge of failure.

Today, Mesa Airgroup issued a proxy notice for a special shareholder vote on May 13, specifically to get shareholder approval to issue a little stock to help make ends meet.

How much stock?

Oh, potentially 30 million shares... or more.

Back in 2003, Mesa issued a convertable bond offering to raise cash. The holders of those notes have the option to convert those into cash this June. If the full value of the bonds are converted, Mesa would need to come up with about $37.8M.

So what's the big deal?

Simple. They don't have the cash. And because they're listed on NASDAQ, they can't issue more than 20% of their existing shares without 50%+1 approval.

That's going to be a hard sell for shareholders to swallow. If they don't approve it, their shares are likely to become worthless in a bankruptcy filing. If they do approve it, their shares are likely to become worthless because the number of outstanding shares will double overnight.

Read the SEC Filing

My guess is that Mesa won't get shareholder approval, and they'll be forced to hand over up to $30M in cash. They were down to about $90M on 12/31, and assuming they've lost a few bucks, the payout could start a cascading effect with regard to loan covenants.

Yes, friends, Mesa moved up a notch or two on the failure probability list.