Despite bad timing, the first-ever EETC from Southwest Airlines Co. went exceptionally well, sources close to the deal said, adding that the senior tranches were each approximately seven times oversubscribed. "The deal was a blowout - we announced it (Thursday) morning and then launched five- to seven inside of initial talk," said a banker working on the deal.

The $614 million offering came on the heels of the company's positive third-quarter earnings statement, reporting a $150.9 million profit, or 19 cents a share, in line with analysts' expectations. Many investors were tuned into a conference call following the earnings release, the outcome of which was that Southwest has held up nicely to the adversities facing the airline industry.

"We have frozen headcount and instituted strict controls over hiring, but we are not contemplating furloughs at this time," CEO Jim Parker said during the call. By contrast most other airlines have greatly reduced costs, increased layoffs and sought federal bailout packages.

"This isn't American or United, these guys are survivors. Right now Southwest is the darling of the industry," the banker source added. "We could have sold billions of this paper."

The structure of the offering also helped its blowout status. Combined with the relatively good credit (Baa1/A+) of the issuer, the 5.491% weighted average coupon of the collateral is the lowest ever and the first to come in under 6%, sources noted. The aircraft backing the deal, 29 Boeing 737s, are "good jets, easily re-marketable."

The result was a successful offering in the one sector most marred by the events of Sept. 11. Allowing the company access to capital markets when investors are skittish on just about every other major carrier in the world.

Pricing

The $150 million senior A1 and $375 million A2 tranches also received triple-A ratings from Standard & Poor's, a rarity even prior to the terrorist attacks. Moody's Investors Service rated both of the tranches Aa2 and a Fitch rating was not reported.

The strong demand led to tightening in all three offered tranches. The $150 million A1, with a five-year maturity and 3.1-year average life, tightened from initial talk of 180 to 185 basis points over to price at 178 basis points over the 5 7/8 Treasury due November 2004 and the $375 million A2, with a five-year final maturity and WAL, tightened from initial talk of 175 to 180 over to yield 172 basis points over the 4 5/8 Treasury due May 2006. Moving down in credit the $89.25 million five-year (WAL and maturity) B class, rated A2/A+, tightened from initial talk in the 240 basis point area to yield 235 basis points over the Treasury due May '06.

Dallas-based Southwest is a no-frills carrier that offers customers no reserved seating and ticketless travel. Southwest operates a fleet of roughly 360 aircraft, all of which are Boeing 737s and has been profitable for 28 straight years. The aircraft in this deal were 29 such planes delivered between 1997 and 2001 and are, on average, 2.35 years old.

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