October 30, 2020 – The Debtors notified the Court that their Second Amended Chapter 11 Plan of Liquidation had become effective as of October 30th [Docket No. 673]. The Court previously confirmed the Debtors’ Plan on June 26, 2020 [Docket No. 400], with that order followed by an October 27th order modifying the Plan [Docket No. 663].

On April 6, 2020, Ravn Air Group, Inc. and seven affiliated Debtors (“Ravn” or the “Debtors”) filed for Chapter 11 protection with the U.S. Bankruptcy Court in the District of Delaware, lead case number 20-10755. At filing, the Debtors, Alaska’s largest regional air carrier and network, noted estimated assets between $100.0mn and $5000.0n and estimated liabilities between $100.0mn and $500.0mn. In a Schedule A/B, the Debtors noted $92.2mn of assets and $114.7mn of liabilities [Docket No. 181].

The Debtors’ were represented by Victoria Guilfoyle of Blank Rome LLP. Further board-authorized engagements included (i) Keller Benvenutti Kim LLP as general bankruptcy counsel, (ii) Conway MacKenzie as financial advisors and (iii) Stretto as claims agent.

Amongst the most notable, and ironic, last-minute changes to the Plan in the Court's October 27th order 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.

Committee Settlement

The Court’s initial 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."

The following is an updated summary of classes, claims, voting rights, and expected recoveries (defined terms are as defined in the Plan and/or Disclosure Statement):

• Class 1 (“Prepetition Secured Creditor Claims”) is impaired and entitled to vote on the Plan. Each holder of an outstanding Prepetition Secured Creditor Claim shall be Distributed One Class B Liquidation Trust Interest in exchange for every Thousand Dollars ($1,000) of such Holder’s Class 1 Claim. Notwithstanding Section 506(a) of the Bankruptcy Code, Holders of Claims in Class 1 shall be deemed to have waived the unsecured portion of their Class 1 Claims, if any, and will have no right to recover anything from the Creditors’ Fund with respect to any deficiency Claims.
• Class 2 (“Other Secured Claims”) is unimpaired, deemed to accept, and not entitled to vote on the Plan. The estimated recovery is 100%.
• Class 3 (“Priority Claims”) is unimpaired, deemed to accept, and not entitled to vote on the Plan. The estimated recovery is 100%.
• Class 4 (“General Unsecured Claims”) is impaired and entitled to vote on the Plan. Each holders shall receive its Pro Rata share of the Creditors’ Fund; and (ii) on the Effective Date, One Class C Liquidation Trust Interest in exchange for every Hundred Dollars ($100) of such Holder’s Class 4 Claim shall be Distributed. As part of their agreement to fund the Administrative Claims Reserve, the Professional Fees Reserve and the Creditors’ Fund, pursuant to Bankruptcy Rule 9019, Holders of DIP Claims and Class 1 Claims shall be deemed to have waived their rights to Distributions in respect of their deficiency General Unsecured Claims. Allowed General Unsecured Claims will be paid from the Creditors’ Fund and the Liquidation Trust Assets.
• Class 5 (“Subordinated Claims”) is impaired, deemed to reject, and not entitled to vote on the Plan. The estimated recovery is 0%.
• Class 6 (“Equity Interests”) is impaired, deemed to reject, and not entitled to vote on the Plan. The estimated recovery is 0%.

Voting Result

On June 23, 2020, the Debtors' claims agent notified the Court of Plan voting results [Docket No. 372] which were as follows:

• Class 1 (“Prepetition Secured Creditor Claims”) – 12 claims holders, representing $50,863,911.07 (or 86%) in amount and 92% in number, accepted the Plan. 1 claim holder, representing $8,592,614.50 (or 14%) in amount and 8% in number, rejected the Plan.
• Class 4 (“General Unsecured Claims”) – 21 claims holders, representing $355,440.16 (or 4%) in amount and 19% in number, accepted the Plan. 88 claims holders, representing $9,143,697.84 (or 96%) in amount and 81% in number, rejected the Plan. 7 votes were not tabulated.

Events Leading to the Chapter 11 Filing

In a declaration in support of the Chapter 11 filing (the “Mannion Declaration”), John Mannion, the Debtors' Chief Financial Officer, detailed the events leading to Ravn’s Chapter 11 filing. The Mannion Declaration states: "Because of Alaska’s harsh winter climate, the Debtors’ businesses are highly seasonal. Their operations tend to consume cash during the last and first quarters of each year, when they must cover capital costs and costs associated with the maintenance of their extensive route network and aircraft fleets. The business model relies heavily on cash flow received during the summer tourism season in the second and third quarters of the year, when passenger revenues are highest. Indeed, given the capital-intensive nature of the Debtors’ business, strong financial results in the summer and fall months are essential to the Debtors’ survival.

On March 12, 2020, after several months of increasing outbreaks around the world, and the World Health Organization declaring COVID-19 to be a pandemic, the Governor of Alaska announced the first case of coronavirus in Alaska on live television. Prior to that point, travel restrictions had already been instituted around the world and in the United States, which caused airlines across the country to experience substantial revenue losses as a result of decreased sales and canceled flights.

These same effects hit Alaska on March 12. It was at that time that airline bookings at the Company dropped dramatically, with the Company experiencing an astonishing 80-90% decrease in passenger revenue at all three of its airlines, as compared to the Company’s historical results for the same period. In addition, in mid-March, the Company, along with other Alaska carriers, began receiving demands from rural hubs and villages around Alaska not to fly passengers to or from their communities. Finally, on March 20, 2020, the State of Alaska published Health Alert 9.2, issuing a strong advisory to all Alaskans to cease any non-essential in-state long distance personal, business, or medical travel. In total, this caused an unprecedented drop in passenger traffic and passenger revenue placing Ravn in a significant negative cash flow situation. 

Prepetition Debt

Ravn Air Group, Inc. is party to a July 2015 credit agreement (the “Credit Agreement”), with certain lenders (collectively, the “Prepetition Secured Lenders”) and BNP Paribas, as administrative agent, comprised of a $95.0mn term loan and a $15.0mn revolving loan. As of March 31, 2020, the Debtors owed approximately $90.9mn, exclusive of interest and fees, under the Credit Agreement.

About the 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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