ATSG’s Fundamental Change Notice: Navigating Strategic Options for Convertible Note Holders Amid Stonepeak Acquisition

Air Transport Services Group, Inc. (ATSG) has triggered its 3.875% convertible senior notes due 2029’s protective clauses following the completion of Stonepeak’s acquisition on April 11, 2025. This move grants noteholders two critical choices: sell their debt for immediate cash or convert into shares at an enhanced rate. The decision hinges on a nuanced analysis of financial incentives, timing risks, and the strategic implications of ATSG’s new ownership structure.

The Dual Path Forward: Repurchase vs. Conversion

The Fundamental Change Repurchase Right allows holders to sell their notes to ATSG for $1,009.04 per $1,000 principal on May 9, 2025. This includes accrued interest from February 15, 2025, offering a straightforward exit with minimal complexity. The Make-Whole Conversion Option, however, introduces a temporary boost to the conversion rate, raising it from the standard 31.2864 shares to 44.5124 shares per $1,000 principal, settled in cash at $22.50 per share (the merger’s stock price). This yields $1,001.53 per $1,000, a $7.51 discount to the repurchase price.

The repurchase option’s edge is clear in purely numerical terms. However, the conversion route retains strategic value: it locks in the merger’s agreed-upon stock price, potentially shielding investors from post-acquisition volatility.

Timing and Procedures: A Race Against the Clock

The critical deadline is May 8, 2025, by 5:00 p.m. ET. Holders must either surrender notes for repurchase or initiate conversion by this date. Latecomers forfeit both options, forcing them to rely on the original conversion terms post-May 8. The Make-Whole Conversion Period began April 11, 2025, giving holders a 38-day window to act.

The process is further complicated by DTC compliance requirements, emphasizing the need for institutional holders to coordinate with custodians promptly. Withdrawals of repurchase requests are permitted until the deadline, but delays could strand investors in a suboptimal position.

Market Context: ATSG’s Performance and Strategic Shifts

ATSG’s stock has surged 72% over the past year, nearing its 52-week high of $22.49—a figure closely aligned with the merger’s $22.50 per share consideration. This price stability suggests the conversion rate reflects fair value, though the repurchase’s premium may still tempt risk-averse holders.

The company’s Q4 2024 results underscore its operational resilience: despite revenue missing estimates, adjusted EBITDA hit $162.2 million, and free cash flow improved to $34.7 million. These metrics bolster confidence in ATSG’s ability to honor obligations under either scenario.

Strategic Considerations: Beyond the Numbers

While the repurchase offers a slight financial edge, the conversion option’s enhanced rate (a 42% increase in shares per $1,000 principal) could appeal to holders betting on ATSG’s long-term upside under Stonepeak’s ownership. The private equity firm’s history of optimizing logistics and aviation assets—seen in prior investments like Atlas Air—suggests a focus on value creation that may benefit equity holders post-merger.

Conversely, the repurchase’s certainty is a safer bet for those prioritizing liquidity. The $7.51 differential represents a 0.75% premium on the principal, modest but meaningful for high-stakes decisions.

Regulatory and Compliance Nuances

The notice explicitly states it is not an offer to buy notes, underscoring the contractual nature of the repurchase. Holders must rely solely on the Indenture terms, with U.S. Bank Trust Company managing all transactions. Any procedural missteps—such as missing deadlines or mishandling DTC submissions—could invalidate their chosen path.

Conclusion: Act Swiftly, but with Precision

For ATSG’s note holders, this is a zero-sum game of timing and analysis. The repurchase’s $1,009.04 payout edges out conversion’s $1,001.53, but the latter’s alignment with the merger’s equity terms and potential upside under Stonepeak’s stewardship complicates the choice.

Key data points reinforce urgency:
- $7.51 spread: The repurchase’s premium narrows the risk-reward balance.
- $162.2M EBITDA: ATSG’s strong cash flow supports its ability to fulfill obligations.
- 72% stock surge: Market validation of the merger’s value.

Holders should weigh their liquidity needs, risk tolerance, and views on ATSG’s post-merger trajectory. The May 8 deadline is non-negotiable, leaving no room for procrastination. As Stonepeak’s ownership takes hold, this decision will define returns for these notes—whether through immediate cash or a bet on the new era of ATSG.

In the end, the math favors the repurchase, but the strategic narrative may sway some toward conversion. Either way, the stakes are high—and time is running out.