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May 14, 2020 – The Debtors filed a motion requesting each of a bidding procedures order and a sales order [Docket No. 197]. The bidding procedures order would approve bidding procedures for a sale of substantially all of the Debtors’ assets (the “Sale”), including bidder protections and an auction schedule. The sale order would authorize the Sale. That's the boring part.
Since being grounded by COVID-19 and compelled to file for Chapter 11, these Debtors have refused to give up hope of returning to the air. Social media campaigns, lobbying of any political body that will listen, dogged pursuit of CARES Act funds have all been part of a "never say die" effort. The biggest obstacle to date, however, has been the insistence of its prepetition lender (BNP Paribas, now DIP lender) that the Debtors get on with a liquidation process that would provide a recovery for that lender. When CARES Act funds did not materialize out of the chaos that surrounded the launch of that program, the Debtors had no place to turn for DIP financing except to BNP Paribas who provided just enough funding to avoid the need for an immediate liquidation.
The agreed DIP facility included an aggressive timetable that the Debtors (and others, eg the Debtors' Creditors' Committee, see below) argued largely shut the door on any possible going concern sale of Alaska's largest regional airline and by all accounts a critically important service for many Alaskan communities. As such, the Debtors held their noses and filed the liquidating Plan and Disclosure Statement required by to be filed within 20 days of their Chapter 11 filing; a Plan which memorialized marching orders from the DIP lender and which has to be confirmed by June 22nd. Game over? Not for this aspiring phoenix. These Debtors have now concocted a possible escape, combining the possibility of CARES Act funds and a last minute asset sale to steal a famous victory by June 22nd.
The Debtors' bidding procedures motion reminds the Court (and the DIP lender) that under the terms of the Plan, if they can come up with an asset sale that yields "a higher or better return to the Estates than a sale by the Liquidation Trust, they may seek approval of an Asset Sale at Confirmation." The Debtors then advise the Court that ongoing discussions with the U.S. Treasury Department leave them optimistic that they will have access to $35.0mn of CARES Act funds, on the condition that they have a going concern buyer (certainty as to CARES Act funds certainly making the Debtors a more attractive acquisition). As to potential buyers, the Debtors note: "the Debtors have engaged with a number of parties that have expressed interest in purchasing all or some of the Debtors’ Assets…."
The motion states, “On April 3, 2020, the Debtors submitted applications for grants under the CARES Act. The Debtors also filed applications for up to $75 million in loans under the CARES Act later in the month (together with the grant applications, the “CARES Applications”)…
[Further to interim and final debtor-in-possession (“DIP”) orders] the Debtors must undertake an accelerated timetable for resolution of these Chapter 11 Cases. Specifically, the Debtors have agreed as a condition of borrowing under the DIP Facility (as defined in the DIP Orders) to meet certain bankruptcy case milestones (‘Plan Milestones’) set forth in the DIP Orders. These Plan Milestones, calculated as days from the Petition Date, are: (i) 20 days (April 27) to file an Acceptable Plan (as defined in the DIP Orders) and a disclosure statement for the Acceptable Plan; (ii) 48 days (May26), subject to the Court’s availability, to obtain court approval of the Disclosure Statement; and (iii) 76 days (June 22), subject to the Court’s availability, to obtain confirmation of the Acceptable Plan.
Accordingly, on April 27, 2020, the Debtors filed a proposed Chapter 11 Plan of Liquidation…and a related proposed Disclosure Statement …The Plan contemplates, in accordance with the requirements for an Acceptable Plan under the DIP Facility, for the creation and funding of a Liquidation Trust to administer and liquidate all remaining property of the Debtors. The Plan, however, also provides as follows: ‘To the extent that the Debtors conclude that an Asset Sale at Confirmation will yield a higher or better return to the Estates than a sale by the Liquidation Trust, they may seek approval of an Asset Sale at Confirmation; provided that no Asset Sale shall be considered at the Confirmation Hearing or at Confirmation without adequate notice prior to the Confirmation Hearing and absent the consent of the DIP Lenders.’
As of the filing of this Motion, the United States Department of Treasury has not approved the Debtors’ CARES Applications. However, the Debtors have had continuing discussions with representatives of and advisors to the Department of Treasury and anticipate that, in the event a purchaser emerges that is willing and able to purchase the Debtors’ assets and business as a going concern, up to $30 million of CARES Act funding maybe available as a Payroll Support Program Assistance grant, as well as $5 million in the form of a loan under the CARES Act, subject to certain requirements and conditions for such funding.
Since the Petition Date, the Debtors have engaged with a number of parties that have expressed interest in purchasing all or some of the Debtors’ Assets. As of the filing of this Motion, these discussions are ongoing but have not yielded a definitive agreement. Nevertheless, in order to ensure that the Debtors, in consultation with the Creditors Committee and the DIP Lenders, have the opportunity to explore these offers and any others that may emerge on a timeline that is consistent with the Plan Milestones, the Debtors developed the Bidding Procedures that are the subject of this Motion.
Bid Protections: In the event that the Debtors enter into one or more Stalking Horse Agreements, the Debtors may seek approval at the Sale Hearing of a break-up fee and expense reimbursement for any Stalking Horse Agreement, with respect to which the prospective purchaser is not an insider of the Debtors (a “Non-Insider Stalking Horse Agreement”), of no more than 3% of the Purchase Price of such Non-Insider Stalking Horse Agreement (together, the “Bid Protections”).
Proposed Key Dates:
- Bid Procedures Objection Deadline: May 21, 2020
- Bid Procedures Hearing: May 27, 2020
- Bid Deadline: June 17, 2020
- Sale Objection Deadline: June 17, 2020
- Auction: June 22, 2020
- Sale Hearing: June 24, 2020
Further Background [as previously reported]
April 30, 2020 – The Court hearing the Ravn Air Group cases issued a final debtor-in-possession (“DIP”) financing order authorizing the Debtors to (i) access an additional $6.0mn of new money DIP financing, with a further $2.0mn available at the DIP lender’s sole discretion, and (ii) continue using cash collateral [Docket No. 148]. The Court order also authorized a roll-up of $24.0mn of prepetition debt with this final order, with the roll-up limited to rolling up $2 of prepetition debt for every $1 of new money financing.
On April 7th, the Court had allowed the Debtors to access $6.0mn of the DIP financing on an interim basis.
As to the additional $6.0mn (desperately needed by the grounded and broke Debtors who have not otherwise qualified for CARES Act funds) … it came with a catch.
It is only available upon issuance of this final order AND the Debtors' filing of an "Acceptable Plan;" with acceptability determined by the DIP lender ("No later than twenty (20) days after the Petition Date, the Debtors shall file a (i) chapter 11 plan and (ii) disclosure statement that indefeasibly either (a) pays the DIP Obligations, Roll-Up Obligations, and Prepetition Obligations in full in cash.").
20 days to file a Plan that commits to cashing out prepetition and DIP borrowings in excess of $100.0mn? Unacceptable argued the Debtors' Official Committee of Unsecured Creditors (the “Committee”) in a withering objection which the Court has brushed aside with this final DIP order. NB: The Debtors more or less met that 20 deadline, filing a Plan of liquidation on April 27th.
In that objection, the Committee accused the Debtors' prepetition-turned-DIP lender BNP Paribas of using the Chapter 11 process to "enrich themselves, while Ravn’s communities are sorting through immediate, serious problems such as not being able to reach hospitals and other critical help, as they wait for the Company to resume services."
Beyond the rather emotive accusation that the DIP lender was keeping the Debtors (Alaska's largest airline and the only provider of flights to many Alaskan communities) grounded and by inference costing lives, the Committee specifically objected to the DIP financing on the ground that it is too small, too expensive and with sales-related milestones that pushed the Debtors "towards a fire sale or disorderly liquidation."
[As previously reported] April 24, 2020 – The Debtors' Official Committee of Unsecured Creditors (the “Committee”) objected to the Debtors’ motion for authorization to access debtor-in-possession (“DIP”) financing from their prepetition lenders (BNP Paribas), arguing that the proposed financing is insufficient, its fees onerous and its milestones too short to allow for a sales process or to possibly benefit from stimulus funding; in sum, that it "does not provide sufficient runway for a restructuring" [Docket No. 98].
The Committee also reminds the Court of the Debtors' critical role to the State of Alaska as its largest airline, arguing that the DIP lender is using its position to keep the Debtors grounded and to "jam through the restructuring at lightning speed" in furtherance of its own financial objectives, using the Chapter 11 process to "enrich themselves, while Ravn’s communities are sorting through immediate, serious problems such as not being able to reach hospitals and other critical help, as they wait for the Company to resume services."
In an interim April 7th DIP financing order, Court the hearing the Ravn Air Group cases has already granted the Debtors authority to access $6.0mn of what is in total a $12.0mn DIP facility; with the $6.0mn balance to be made available upon issuance of a final DIP order. Also on issuance of a final order, the Debtors will have authority to roll-up of $24.0mn of pre-petition debt upon issuance of a final DIP financing order.
The objection [Docket No. 98] states, “The extraordinary COVID-19 crisis and the unprecedented recession that it triggered tipped these Debtors into the Chapter 11 Cases during the time that ordinarily would have been their most revenue-generating business cycle….Given the pervasive uncertainty over the length of the crisis and timing of any forthcoming government relief, the Debtors have found themselves and their ability to continue providing essential services entirely at the mercy of their Prepetition (and now DIP) Lenders. The Pre-petition Lenders, however, chose to ignore the fact that the Debtors could have continued operating and providing critical services to many communities in this dire time of need and instead, took advantage of the predicament to enhance their investment and priority position through the Chapter 11 process at the expense of other creditors.
The DIP Facility has but one purpose – jam through the restructuring at lightning speed by imposing egregious milestones to get the Prepetition Lenders paid in full in cash in a matter of days, while providing them with additional returns through multiple fees and generous interest rates under the DIP Facility. These fees and rates are especially onerous given that nearly a third of the Prepetition Lenders’ loans are being rolled up into post-petition debt, two dollars to one. The $24 million roll-up component is actually four times the amount irrevocably committed by the DIP Lenders: while the DIP Facility provides for a possibility of an additional $6 million delayed draw on top of the approved $6 million interim borrowing, that amount would only be available after the entry of the Final Order and the filing of an ‘Acceptable Plan,’ that is, a chapter 11 plan that either pays the DIP and Prepetition Lenders in full in cash or is otherwise completely acceptable to them in all respects. The delayed draw is also subject to satisfaction of other unspecified terms and conditions acceptable to the DIP Agent and the Requisite DIP Lenders. While the Interim Order provides for an additional $2 million incremental facility after the entry of the Final Order, that amount is only available in the sole and absolute discretion of the DIP Lenders. (Interim Order, § 7(b)). In sum, the Debtors got a very expensive $6 million advance (less than a quarter of the full DIP amount) that does not provide sufficient runway for a restructuring. It is difficult to understand what the DIP Facility achieves, beyond providing the Prepetition Lenders with enhancements unavailable through a state foreclosure process.
In addition to enhancing their collateral position through the roll-up to the detriment of unsecured creditors, the Prepetition/DIP Lenders have also imposed ‘prepackaged’ plan-type milestones in these Chapter 11 Cases that are guaranteed to push the Debtors towards a fire sale or disorderly liquidation. Specifically, the proposed milestones require the Debtors to file the disclosure statement and Acceptable Plan on April 25, before the second day hearing in these Chapter 11 Cases; obtain approval of the disclosure statement within 48 days; and confirm the Acceptable Plan within 76 days of the Petition Date. The Debtors will simply not have enough time to consider any restructuring alternatives (other than the Acceptable Plan that pays the Prepetition/DIP Lenders in full in cash) and all available sources of exit financing by April 25. Such a compressed artificial timeline will not allow the Debtors to fully explore and receive government aid or other funding in order to implement a value-maximizing restructuring. Even in the case of a sale, there will not be sufficient time to market the Company, to understand the appropriate type of purchaser, and ensure that the sale will bring on appropriate equity value for the assets. Moreover, these milestones completely disable the Committee functions and prevent and discourage any input, investigation or objections by any party in interest. The DIP Facility should assist the Debtors in building a bridge to emergence, not, as it does here, limit due process and circumvent the protections of the Bankruptcy Code for the sole interest of the Prepetition Lenders.
Given the Company’s significant footprint in Alaska and in light of potentially forthcoming government relief that would enable it to resume operations and re-hire its 1,300 employees, the Debtors simply need more time to put a proper plan in place. Unfortunately, through this DIP Facility, the Debtors have ceded control of these Chapter 11 Cases to their Prepetition Lenders. If approved as proposed, the DIP Facility will have the effect of foreclosing any objection or investigation by the Committee or any other party to an ‘Acceptable Plan.’ Such a process runs afoul of the bankruptcy protections for disclosure and confirmation. Furthermore, it is not in the best interest of creditors (aside from the Prepetition Lenders) to force a fait accompli process in a quickly changing environment with significant impacts on Alaskan communities, 1,300 employees, and all other creditors and contract parties.
The Prepetition Lenders could have exercised their state law rights and remedies and foreclosed on their collateral, but instead elected to take advantage of the bankruptcy process. They must ‘pay the freight’ of that choice. This Court should not allow the Prepetition/DIP Lenders to use the Chapter 11 process to enrich themselves, while Ravn’s communities are sorting through immediate, serious problems such as not being able to reach hospitals and other critical help, as they wait for the Company to resume services.”
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.
Key Terms of the DIP Financing:
- DIP Secured Parties: Certain Lenders Signatory to the DIP Credit Agreement
- DIP Agent: BNP Paribas
- Borrowers: The Debtors
- DIP Facility: Senior secured, super-priority debtor-in-possession loan and security agreement consisting of a $12.0mn term loan that will be funded in a series of draws, plus (subject to entry of the Final Order) advances to pay the roll-up amount of up to $24.0mn, plus accrued interest and other fees and amounts owing under the respective loan documents.
- Use of Proceeds: The proceeds of the DIP Facility shall be used by the Debtors to fund general corporate and working capital requirements during the pendency of the Chapter 11 Cases, and to fund the expenses of the Chapter 11 Cases, including professional fees, as set forth in the DIP Budget. Additionally, upon entry of the Final Order, the proceeds of the DIP Facility shall be used to fund the Roll-Up Obligations.
- Maturity Date: Means the earliest to occur of (a) the 90th day following the date of this Agreement; (b) the date upon which the Interim Borrowing Order expires if a Final Borrowing Order with respect thereto shall have not been entered prior to such date; (c) the date that is thirty five (35) days after the entry of the Interim Borrowing Order if a Final Borrowing Order with respect thereto shall have not been entered prior to such 35th day; (d) if an Acceptable Plan of Reorganization has been confirmed by order of the Bankruptcy Court, the earlier of (x) the effective date of such Acceptable Plan of Reorganization, and (y) the 30th day after the date of entry of a Confirmation Order with respect thereto; (e) the date of the closing of a sale of substantially all of the equity or assets of Borrowers; (f) the date of indefeasible prepayment in full in cash of all Obligations under the Loan Documents; (g) the filing of a Plan of Reorganization that is not an Acceptable Plan of Reorganization; and (g) the date of acceleration of the maturity of the Loans in accordance with Section 8.01.
- Interest Rate: The outstanding principal amount of the DIP Facility shall bear interest from the date of disbursement at the Debtors’ Alternate Base Rate plus 8% per annum.
- Default Interest: 2% plus the rate otherwise applicable.
- Fees: The DIP Facility includes an upfront fee of 3%, an unused commitment fee of 2% and an Agent Fee (as defined in the DIP Credit Agreement). Additionally, the DIP Credit Agreement provides for payment of the DIP Secured Parties’ expenses, which include without limitation various professional fees of the DIP Secured Parties in negotiating, documenting, administrating and enforcing the DIP 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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