Travelport Defends $1.15B Asset Transfer Within $1.27B Basket Capacity, Alleges Lenders Group Seeks to ‘Intimidate, Coerce’ Company Into Abandoning Transaction to Accept ‘Drastically Inferior’ Financing

Relevant Documents:
Complaint
Exhibit A

Travelport sued its first lien credit agreement’s administrative agent Bank of America today in New York State Supreme Court, seeking a declaration that no event of default occurred as a result of its $1.15 billion asset transfer to an unrestricted subsidiary, as a group of lenders allegedly tried to “intimidate and coerce” the travel technology company into abandoning the IP transaction and accepting a “drastically inferior” alternate financing proposal from the lenders.

The lawsuit comes on the same day that Travelport said it received commitments for $500 million of new capital from sponsors Elliott Management and Siris Capital Group, and an additional $500 million of available capacity.

A group of first lien lenders, represented by law firm Akin Gump and advised by PJT Partners, signed nondisclosure agreements to negotiate a potential financing, according to the complaint, while simultaneously directing the agent to send a notice of event of default under the credit agreement to Travelport, arguing that the transfer of $1.15 billion of assets to an unrestricted subsidiary breached the credit agreement because the value of the IP assets exceeds the “clearly defined” basket capacity. Travelport defended its ability to carry out the transaction, insisting that the ability to transfer assets to unrestricted subsidiaries was a “critical, fully negotiated deal term[] in the Credit Agreement.”

If deemed valid, Travelport argues, the event of default would allow the ad hoc group to pursue “draconian remedies,” such as declaring all amounts borrowed under the credit agreement to be immediately due and payable.

As described in further detail in the complaint, a timeline of events relevant to the transaction include the following:
 

• April 21 and April 30: Two independent and disinterested directors are appointed on the boards of directors of Toro Private OpCo Ltd. and one of its parent companies, Toro Private Holdings III Ltd.;
   
• April 24: An independent and disinterested manager is appointed to the board of managers of the newly formed Travelport Technologies LLC;
   
• May 4: The Travelport board receives Ocean Tomo’s valuation of the IP assets;
   
• May 5: Travelport transfers certain IP assets to Travelport Tech Holdings, which subsequently transfer the assets to Travelport Tech;
   
• May 7: Travelport designates the two entities as unrestricted subsidiaries;
   
• May 8: Travelport and its advisors begin preparing a data room and distribute proposed lender NDAs;
   
• May 14: Advisors to the ad hoc group execute NDAs;
   
• May 18: The ad hoc group becomes restricted after all lender NDAs are executed; Travelport presents its initial proposal telephonically to the ten restricted lenders and their advisors;
   
• May 18-28: Travelport and the ad hoc group exchange five proposals and engage in numerous discussions through their respective advisors;
   
• May 20: First lien credit agreement agent Bank of America submits a notice of resignation;
   
• May 27: Members of the ad hoc group direct the agent to send a notice of event of default under the credit agreement to Travelport;
   
• May 29: Members of the ad hoc group present their proposal and views directly to members of Travelport’s management and one of the company’s independent directors.
   

According to the complaint, Travelport seeks a declaratory judgment finding that no default or event of default has occurred as a result of the IP transaction and that the IP transaction was expressly permitted by and complies with the credit agreement. Travelport also asks the court to enjoin the agent from exercising any remedy as a result of the IP transaction or the asserted event of default.

IP Valuation

Travelport asserts in the complaint that before consummating the IP transaction, its advisors hired independent intellectual property valuation firm Ocean Tomo to value the IP assets and to ensure that their fair market value did not exceed Travelport’s “basket” capacity under the credit agreement. On May 4, after more than four weeks of undertaking the valuation analysis, Ocean Tomo presented the board with its valuation of the IP assets, indicating that the fair market value was about $1.15 billion.

According to the company, the independent disinterested directors elected to Travelport’s board diligently reviewed the third-party valuation analysis and presentations from Travelport’s advisors and determined in good faith that the IP transaction (and related financing) was in the best interests of Travelport, the filing says. The complaint emphasizes that the credit agreement specifies that the “Fair Market Value” of any assets would be “determined in good faith by the Company.”

As noted above, Travelport executed the IP transaction by transferring the IP assets to Travelport Tech Holdings and then to Travelport Tech on May 5. Travelport subsequently designated those entities as unrestricted subsidiaries on May 7.

Asset Transfer

Travelport argues that its transfers of IP to the unrestricted subsidiaries were made “in strict accordance with the clear terms of the credit agreement.” At the time of the IP transaction, six different baskets in the credit agreement provided Travelport with an aggregate of $1.27 billion in basket capacity available for transfers of assets into one or more unrestricted subsidiaries, including a basket for investments in a “Similar Business”; following the transaction, the company believes that it has $120 million of capacity for additional transfers. Citing the same six baskets, Covenants by Reorg previously concluded that Travelport likely had, at a minimum, $1.3 billion of capacity to transfer assets to unrestricted subsidiaries and likely has about $140 million of remaining capacity.

Travelport also defends its reliance upon the “Similar Business” basket to calculate the basket capacity.

On May 27, while negotiations with the ad hoc group were ongoing, members of the group directed the agent to send a notice of event of default under the credit agreement based on the “unfounded assertions” that the IP transaction breached the credit agreement because the value of the IP assets purportedly exceeds the basket capacity, the complaint alleges.

The complaint maintains that Bank of America made clear that it had not independently assessed the declaration of default. Moreover, Travelport points out that the agent had already submitted a notice of resignation on May 20, which was not yet effective by the time the lenders group directed the agent to send the “baseless” notice of event of default, indicating that it was “uncomfortable” with the ad hoc group’s tactics and position.

Travelport says that the ad hoc group has been unable to cite any data or evidence for the assertion that the value of the IP assets exceeds the basket capacity. Instead, the lenders group has merely attacked the valuation report generically as “flawed in a number of respects” and as “unsound,” without providing Travelport a competing valuation, the complaint states.

The complaint maintains that the lenders group threatened to sue Travelport and declare an event of default under the agreement unless the IP transaction was unwound.

Travelport said it is working with Guggenheim as financial advisor. The company is represented by Kirkland & Ellis, as reported.

As of May 31, Travelport had $3.43 billion in debt, consisting of $2.93 billion under the first lien credit agreement and $500 million under the second lien credit agreement. The first lien credit agreement is attached as an exhibit to the complaint.

Bank of America, Akin Gump and PJT Partners did not immediately respond to requests for comment.

--Harvard Zhang