Nordic Aviation Capital Designated Activity Company – COVID-Stricken Regional Aircraft Powerhouse Gets Access to $60mn of New Money DIP Financing

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January 13, 2022 – The Court hearing the Nordic Aviation Capital Designated Activity cases issued an interim order authorizing the Debtors to (i) access $60.0mn of new money debtor-in-possession (“DIP”) financing on an interim basis (the “Initial DIP Term Loans”) and (ii) use cash collateral [Docket No. 171].

The current DIP financing is part of a total of $170.0mn of DIP financing being provided by certain prepetition secured creditors and which is to come in three tranches: (i) $60.0mn of Initial DIP Term Loans now available, (ii) a delayed draw of $60.0mn (the “Delayed Draw DIP Term Loans”) and (iii) a final delayed draw of $50.0mn (the “Final Delayed Draw DIP Term Loans”). The balance of the DIP financing is to be made available upon the issuance of a final DIP order, with consideration of that order now scheduled for February 3, 2022.

The Limerick, Ireland based Debtors own the world's largest fleet of regional aircraft and filed for bankruptcy protection on December 19, 2021 with $5.37bn of funded debt. At filing, the Debtors ($2.4bn net loss in 2020-2021 fiscal year) succinctly summed up the impact of the COVID pandemic on their operations: "customers are facing severe liquidity issues, and, simply put, NAC cannot collect cash that its customers do not have."

Background on DIP Financing

Central to the DIP financing is the silo-ing of individual borrowers with those individual entities receiving funding on a needs basis, with borrowings flowing down through the topco borrower NAC DAC (at least as to those silos where prepetition lenders have consented to priming liens in favor of the DIP facility or where there is no prepetition debt) and NAC DAC serving as guarantor.  With $137.0mn of unrestricted cash on hand, the Final [$50.0mn of] Delayed Draw DIP Term Loans are there "if needed."

The Debtors' DIP motion [Docket No. 146, which attaches a form of the DIP credit agreement] notes, “Over the course of nearly a year prior to the Petition Date, the Debtors, their advisors, and their prepetition secured creditors have worked diligently and in good faith to negotiate the terms of a comprehensive financial restructuring of the Debtors. 

As the Debtors engaged in these complex and multi-faceted negotiations with multiple creditor constituencies, it became apparent that the Debtors would require debtor-in-possession financing to continue ordinary-course operations postpetition and bridge to implementation of the value-maximizing transactions contemplated by the RSA (the ‘Restructuring Transactions’). While the Debtors’ cash-pooling parent entity, Nordic Aviation Capital Designated Activity Company (‘NAC DAC’), has approximately $137 million in unrestricted cash on hand, the Debtors can only fund ongoing operations and the administration of these cases with NAC DAC cash for so long. Accordingly, contemporaneously with execution of the RSA, the Debtors entered into a commitment letter with certain of their prepetition secured creditors for a fully-committed $170 million senior secured superpriority delayed draw term loan facility (the ‘DIP Facility’).

The DIP Facility is tailored to the Debtors’ ‘silo’-based capital structure, in which (a) each of the Debtors’ secured financing arrangements (and the collateralization of the same) is limited to a specific entity or subset of entities within the corporate group (a ‘silo’); and (b) the silo-level entities’ obligations under the financing arrangement are guaranteed by the silo’s direct or indirect parent. The proposed DIP Facility borrower, NAC DAC, is the top-most entity in the organizational structure and the guarantor of nearly all of the Debtors’ silo-level secured financing arrangements. Funds borrowed by NAC DAC under the DIP Facility will be made available (via intercompany lending) to silos at which the requisite prepetition secured parties have consented to the priming liens securing the DIP Facility (the ‘Participating Silos’) and also to certain Debtors without prepetition secured funded debt obligations.

Each Participating Silo will guarantee the DIP Facility on a several, and not joint, basis to the extent of the Participating Silo’s net intercompany borrowings from NAC DAC (plus a proportionate share of the DIP Facility interest paid by NAC DAC), as determined based on a negotiated calculation and allocation methodology. Each non-silo Debtor that guarantees the DIP Facility, by contrast, will guarantee the full amount of NAC DAC’s obligations under the DIP Facility on a joint and several basis. A DIP Facility obligor’s obligations thereunder will be secured by first priority perfected senior liens on substantially all of the obligor’s assets, with the exception of certain excluded assets and subject to the Carve Out and certain permitted prior liens.

With respect to cash collateral use, the Debtors and a majority of their prepetition secured creditors have reached agreement on a framework for consensual use of cash collateral postpetition, certain aspects of which remain subject to further negotiation with other prepetition secured creditors. This framework consists of three principal parts: (a) a prohibition on the Debtors’ use of cash collateral of prepetition secured creditors that have not consented to the priming DIP Facility liens; (b) a customary adequate protection package for prepetition secured creditors of DIP guarantor silos (including adequate protection liens and superpriority claims in respect of the applicable obligors and current cash payment of such prepetition secured creditors’ professional fees and expenses); and (c) controls on postpetition intercompany cash transfers between NAC DAC and Participating Silos to prevent any Participating Silo from being a net postpetition lender to NAC DAC.

The fully-committed DIP Facility allows the Debtors to ensure that their postpetition funding needs are fully covered and also send a clear message to customers and vendors that the Debtors will continue to be a reliable partner, both of which are critical to the Debtors’ successful reorganization. The DIP Facility is also a key component of the negotiated, value-maximizing Restructuring Transactions, which are premised on approval of this DIP Facility”.

Key Terms of the DIP Financing:

  • Borrower: NAC DAC
  • Guarantors: Each direct and indirect Debtor subsidiary of NAC DAC that is listed in Exhibit 1 to the Interim Order. Each other Debtor that becomes a party to the Loan Guaranty.
  • DIP Lenders: The lenders from time to time party to the DIP Credit Agreement, which are expected to include (a) certain holders of NAC 29 Funded Debt Obligations; (b) the Silver Point Creditors; and (c) certain RoG Facility Prepetition Secured Parties under Option A/D RoG Financing Arrangements.
  • Commitment: $170.0mn. The first Borrowing of Term Loans shall be made following the Interim DIP Order Entry Date in the principal amount equal to $60.0mn (the “Initial Borrowing”), (ii) the second Borrowing of Term Loans shall be made following the Final DIP Order Entry Date in the principal amount equal to $60.0mn and (iii) the third Borrowing of Term Loans may be made after the date of the second Borrowing but prior to the Maturity Date in the principal amount equal to $50.0mn.
  • New Money: $170.0mn
  • Roll-Up: N/A
  • Term/Maturity: The earliest of (a) the date that is nine months after the Petition Date; (b) the substantial consummation of a Reorganization Plan filed in the DIP Loan Parties’ chapter 11 cases that is confirmed pursuant to an order entered by the Bankruptcy Court; (c) the consummation of a sale or other disposition of all or substantially all of the assets of the DIP Loan Parties under section 363 of the Bankruptcy Code and (d) the acceleration of the DIP Loans and the termination of the commitment with respect to the DIP Facility in accordance with the DIP Documents.
  • Interest Rate: For Base Rate Loans, for any day, a rate per annum equal to the sum of (a) the highest of (i) the Federal Funds Rate for such day plus 0.50%, (ii) the Prime Rate for such day, and (iii) if determinable, the Interbank Offered Rate applicable for an Interest Period of one month beginning on such day (or if such day is not a Business Day, the immediately preceding Business Day) plus 1.00% plus (b) 7.00% per annum. For Eurodollar Rate Loans, for each interest period, a rate per annum equal to the sum of (a) LIBOR for such interest period (with a 1.00% LIBOR floor) plus (b) 8.00% per annum.
  • Fees and Expenses:The Debtors shall pay the DIP Fees to the DIP Secured Parties as provided in the DIP Documents. 
    • Upfront Fee: 3.0% of the aggregate principal amount of outstanding DIP Commitments immediately prior to the DIP Borrower’s drawing the Initial DIP Term Loans, which shall be payable in cash solely from Unrestricted Cash; 
    • Exit Premium: 2.0% of the aggregate principal amount of the DIP Commitments, payable pursuant to the terms and conditions set forth in the DIP Credit Agreement; 
    • Put Option Premium: 4.0% of the aggregate principal amount of the DIP Commitments of the DIP Backstop Parties, payable in cash solely from Unrestricted Cash and in accordance with the terms of the DIP Commitment Letter; 
    • Extension Premium: 0.50% of the aggregate principal amount of the DIP Commitments of the DIP Backstop Parties, payable in cash solely from Unrestricted Cash and in accordance with the terms of the DIP Commitment Letter; 
    • Commitment Fee: 4.50% per annum on any undrawn DIP Commitments (after the drawing of the Initial DIP Term Loans), payable pursuant to the terms and conditions set forth in the DIP Credit Agreement; provided that, upon entry of the Interim Order, the Debtors shall place or cause to be placed Unrestricted Cash in an amount equal to $1,687,500.00 in a segregated account to be held in trust for the DIP Lenders in respect of the DIP Commitment Fee and from which the DIP Commitment Fee shall be paid; and provided, further, that any amounts remaining in such account after payment of the DIP Commitment Fee shall be returned to the Debtors as Unrestricted Cash promptly after such payment; 
    • Expenses: All reasonable and documented costs and expenses as may be due from time to time under the DIP Documents and the Interim Order, including, without limitation, the reasonable and documented fees and expenses of the DIP Professionals, as provided for in the DIP Documents and the Interim Order, subject to the provisions of paragraph 34 of the Interim Order.
  • Use of Proceeds: The DIP Debtors may use the proceeds of the DIP Facility (a) for the payment of working capital of the DIP Borrower and the other DIP Loan Parties in the ordinary course of business, (b) for Permitted Investments and other general corporate purposes, (c) for the payment of the costs and expenses of administering the Chapter 11 Cases, and (d) to make the Adequate Protection Payments, in each case, in accordance with the DIP Orders and the Budget (subject to the Applicable Permitted Variance). The DIP Debtors may use Cash Collateral for any lawful purpose of the DIP Debtors, in each case, in accordance with the DIP Orders and the Budget (subject to the Applicable Permitted Variance).
  • Milestones:The DIP Credit Agreement contains the following milestones:
    1. entry of the Final Order; no later than forty six (46) days after the Petition Date;
    2. entry of the Final Order confirming an Acceptable Plan; no later than One Twenty (120) days after the Petition Date.

Initial Budget (see Exhibit 3 to interim DIP order)

Prepetition Indebtedness

As of the Petition Date, the Debtors have approximately $6.3 billion in outstanding Total Claims and $5.9 billion in total funded debt obligations, approximately $5.4 billion of which are secured obligations. NAC’s prepetition funded debt is comprised of loans under thirty-nine financing facilities provided by eighty-three lenders. Currently, NAC DAC’s ultimate equity holders are: EQT’s Turbo Holding Guernsey Limited (39.94%); GIC’s Raffles Private Holdings Limited (34.05%); and Axiom Partners 10 Ltd (26.02%).

Significant Shareholders

Nordic Aviation Capital Designated Activity Company owns 100% of the Debtors’ equity interests.

Events Leading to the Chapter 11 Filing

In a declaration in support of the Chapter 11 filing (the “Bickle Declaration”), Justin Bickle, the Debtors’ chief executive officer, detailed the events leading to Nordic Aviation’s Chapter 11 filing. The Bickle Declaration provides: “COVID-19 and the resultant shelter-in-place orders to stop its spread halted consumer and business travel overnight. Struggling airlines were forced to ground entire fleets and furlough or lay off thousands of employees….

COVID-19’s effect on the business led to a net loss of $639 million over NAC’s 2019-2020 fiscal year and a net loss of $2.4 billion over NAC’s 2020-2021 fiscal year. NAC’s customers are facing severe liquidity issues, and, simply put, NAC cannot collect cash that its customers do not have. To date, NAC has restructured the lease obligations of thirteen customers on ninety-five aircraft leases. NAC is currently involved in negotiations with fourteen additional customers to restructure the obligations on another 105 leases.

Further, since the last fiscal year, the book value of NAC’s fleet decreased from almost $7 billion to $4.8 billion—more than a thirty percent decrease in value. Significantly, aircraft values are a key factor in rent calculations between NAC and its customers and, despite management’s best efforts, this decrease resulted in lower rental income for new leases. Additionally, this decrease caused the loan-to-value ratio of NAC’s aircraft to rise rapidly and equity value in NAC to decrease significantly.

With an ever-increasing vaccination rate and government-imposed capacity restrictions slowly lifting, the last few months have shown promising signs of recovery, albeit with recent uncertainties caused by the Omicron variant. Airline CEOs are optimistic that there will be a recovery of business travel sparked by pent-up demand after not being able to visit customers although the exact timing remains opaque. In the summer months of 2021, NAC experienced a strong pick-up in placement activity, including delivering fourteen aircraft across all regions, improving on 2019 figures by over fifty percent. Additionally, in fiscal year 2020-2021, NAC’s lease extensions increased forty-five percent. Still, demand for air travel remains unpredictable as countries grapple with the highly contagious Omicron and Delta variants and continuously reevaluate their health and safety protocols….

About the Debtors

According to the Debtors: “NAC provides leasing and lease management services to airlines and aircraft investors worldwide. For 30 years NAC's team of industry experts have been providing flexible, customized and competitive aviation solutions to airlines globally. We are very passionate about regional aviation. Our commitment, agility and expertise in delivering the right aircraft for our customers’ needs has enabled us to grow and maintain our position at the heart of regional aviation.”

Corporate Structure Chart (see Docket No. 6, page 287)

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