Ravn Air Group, Inc. – Further to Better than Expected Asset Sales, Court Approves Post-Confirmation Plan Changes; General Unsecured Creditors Now in the Money

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October 27, 2020 – The Court hearing the Ravn Air Group cases issued an order modifying the Debtors’ Second Amended Chapter 11 Plan of Liquidation [Docket No. 663]. The Debtors' Plan was confirmed on June 26, 2020 and these modifications come as a precursor to what is an imminent effectiveness date (the Debtors anticipating Plan effectiveness at the end of October); the order stating in part that: "The Debtors are authorized to declare an Effective Date immediately upon entry of this Order."

Amongst the most notable, and ironic, last-minute changes to the Plan is the removal of any references relating to debtor-in-possession ("DIP") claims held by BNP Paribas, the prepetition-turned-DIP lender that the Debtors believe forced the COVID-stricken airline into liquidation (BNP Paribas' DIP funding only available on the condition that the Debtors, valiantly fighting for a going concern future, file a liquidation Plan). The Debtors have long-wished the DIP lender (now, "paid…[and] entitled to nothing further under the Plan") as far away from the Plan as possible. With all DIP obligations settled with asset sale proceeds in August 2020, the heavy handed DIP lender is indeed outside of the Plan they forced on the Debtors, but it is of course too late to save the airline as it then existed. NB: Elements of the old management team, having bought certain of the Debtors' assets, are looking to launch a "new" airline: RAVN Alaska.

The Court's present order reads in part: "The DIP Claims have been paid and are entitled to nothing further under the Plan. Accordingly, all references to Class A Liquidation Trust Interests and their treatment shall be stricken from the Plan Documents."

The balance of the Plan changes are related to the better than expected asset sale results that made BNP Paribas (as DIP lender) whole and which now flow down (unexpectedly) to general unsecured creditors. The achievement of the "minimum Asset Sale Realization" (see "Committee Settlement," below) not only obviates the need for a liquidation trust to serve the interests of DIP claim holders but gives sudden new relevance to the Class C Liquidation Trust created as result of the Committee Settlement and which needs authorities to make distributions to general unsecured creditors suddenly in the money.

The Debtors' requesting motion [Docket No. 639] provided, “As contemplated in the Plan, the Debtors proceeded with sales of certain of their assets in order to fund the Plan.  Those sales were negotiated, documented, and closed through the months of July, August, September and into October(the 'Post-Confirmation Closings').  As of the date of this Motion, more than two dozen sales closed with gross proceeds in excess of $55 million of proceeds, which represents the minimum Asset Sale Realization threshold before unsecured creditors begin to receive twenty percent (20%) of the gross asset sale proceeds

At the time that the Plan was confirmed, the Debtors did not anticipate that the Post-Confirmation Sales would be as extensive as they were or would yield as much in proceeds as they did. Certain of the purchasers acquired stock in certain of the Debtors, as more fully described in the orders authorizing those sales, which was not specifically provided for in the Plan. Each of the foregoing requires minor modifications to the Plan.

Elimination of Class A Liquidation Trust Interests: The Plan provided that DIP Claims would be satisfied over time by the Liquidation Trust, and each holder of a DIP Claim would be issued a Class A Liquidation Trust Interest to affect the foregoing. Because the DIP Claims were satisfied in August, there is no need to make any distribution of Class A Liquidation Trust Interests.

Express Authority to Make Distributions and Fund Reserves before Funding the Liquidation Trust: Under the Plan as initially drafted, the Liquidation Trust was to receive and distribute sale proceeds. With the late creation of Class C Liquidation Trust Interests, and the unexpected determination that funds will be sufficient to make distributions to holders of such interest (i.e., general unsecured creditors), the Liquidation Trust’s beneficiaries have increased by an order of magnitude or more. While the Debtors believe that the number of holders of Interests in the Liquidation Trust would not be so large as to trigger registration requirements under the federal securities laws, the Debtors have not made a conclusive determination that this is the case.

However, even if holders of interests in the Liquidation Trust exceeded the minimum threshold, the Debtors are advised that the Liquidation Trust would not have to register under the federal securities laws if the total assets in the Liquidation Trust were valued at less than $10 million. Accordingly, if the cash in the Debtors’ possession were immediately distributed as provided in the Plan or directed into reserve accounts to pay accrued obligations as of the Effective Date, the Liquidation Trust would receive only the Debtors’ remaining personal property assets. The Debtors believe that the aggregate value of those assets is less than $10 million. Accordingly, if the Debtors are permitted to make the preliminary distributions from the Debtors’ estates, rather than from the Liquidation Trust, the Debtors will likely be able to avoid risking the registration of Liquidation Trust Interests under the federal securities laws.

Exclusion of JJM as a Remaining Debtor: The Plan provided that all of the Debtors would be dissolved and, subject to the procedures set forth in the Plan, their cases closed, except for Ravn Air Group, Inc. (‘Ravn’) and JJM. Ravn was to be the primary surviving entity to hold or manage assets incapable of being transferred to the Liquidation Trust, while JJM was to continue to serve as trustee of the Icecap Trust. Because the Icecap Trust is no longer required to hold the Debtors’ aircraft (all of which have been sold) and its assets are or will have been transferred at or in connection with the Effective Date, there is no longer any need for JJM to survive.

Treatment of Corvus, FFS and Hageland Shares: The Plan provides that holders of equity interests (hereafter, ‘Stock’) in the Debtors will receive nothing. This Motion does not propose to change the treatment of such holders. However, for regulatory reasons the purchasers of the businesses related to Corvus, FFS and Hageland (each of which was wholly owned by another Debtor) took, among the assets purchased, the stock of those entities.3 Accordingly, while the Plan provided that the Stock would be extinguished, in the case of Corvus, FFS and Hageland, the orders approving the sales provided (in the case of FFS and Hageland, or should have provided (in the case of Corvus ) that ‘such Stock shall not be extinguished on the Effective Date.’ In the proposed form of order hereon, the Debtors seek confirmation of the foregoing.”

Committee Settlement

The Court’s confirmation order added the following as to the “Committee Settlement: "The Plan, the Liquidating Trust Agreement, the Schedule of Preserved Claims set forth in Exhibit C to the Plan Supplement, and any related documents shall be modified to reflect the following settlement between and among the Debtors, the Committee, the Holders of Class 1 Claims and the Holders of DIP Claims (the ‘Committee Settlement’)….As set forth in the Plan, in addition to the treatment set forth in Section 3.06 of the Plan, including, without limitation, a Pro Rata share of the Creditors’ Fund, Holders of Class 4 General Unsecured Claims shall receive 20% of any Asset Sales consummated by the Debtors and the Liquidation Trust after $55 million is actually received by the Liquidation Trust (before any Liquidation Trust Expenses) in Asset Sales (the ‘Asset Sale Realization’) are consummated, on a pro rata basis with the Holders of DIP Claims and Prepetition Secured Claims. For the avoidance of doubt, no Liquidation Trust Expenses shall be netted from the sale price to calculate the $55 million Asset Sale Realization threshold." This is picked up in the Second Amended Plan which now adds: "On the Asset Sale Realization Date (as defined below), the Liquidation Trust shall Distribute to each Holder of Class C Liquidation Trust Interests Pro Rata 20% of excess cash received from any Asset Sales consummated by the Debtors and the Liquidation Trust after $55 million (before Liquidation Trust Expenses) in Asset Sales (the 'Asset Sale Realization') are consummated (the 'Asset Sale Realization Date'), on a Pro Ratabasis with Class A Beneficial Interests and Class B Beneficial Interests. For the avoidance of doubt, no Liquidation Trust Expenses shall be netted from the sale price to calculate the $55 million Asset Sale Realization threshold."

About the Prepetition Debtors

Ravn Air Group was formed through the combination of five well known and long-tenured Alaskan air transportation businesses in 2009, creating the largest regional air carrier and network in the state. Ravn owns and, until the COVID-19-related disruptions, operated 72aircraft, at 21 hub airports and 73 facilities, serving 115 destinations in Alaska with up to400 daily flights. Until the COVID-19-related disruptions, the Debtors had over 1,300 employees(non-union), and it carried over 740,000 passengers on an annual basis. The Company provides air transportation and logistics services to the passenger, mail, charter, and freight markets in Alaska, pursuant to U.S. Department of Transportation approval as three separate certificated air carriers.

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