UPDATE 10:34 p.m. EDT 4/13/2016: On Wednesday evening, NAC Aviation 23 filed a
notice that it is exercising its right to deselect certain vendor contracts under its settlement with Republic Airways. Specifically, the notice asserts that NAC is choosing not to assume and assign nine vendor contracts under the terms of the settlement agreement. Separately, Republic Airways also filed a
notice of a revised schedule to its settlement motion with NAC Aviation. According to the notice, Schedule 3 to the proposed order has been amended to remove the vendor contracts for which NAC exercised in its rights to deselect. According to revised Schedule 3, the contract with Pratt & Whitney Canada Corp. dated `May 1, 2012, as amended from time to time, still remains and the proposed cure amount is $400,805.57.
UPDATE 10:27 p.m. EDT 4/06/2016: On Wednesday evening, the Republic Airways debtors
filed a notice attaching a form DIP credit agreement entered into with Delta for $75 million.
UPDATE 2:28 p.m. EDT 4/01/2016: In Republic Airway's
motion to approve a settlement with NAC Aviation 23 to reject a fleet of 27 Bombardier DHC-8-402 airframes, it noted that it will allow NAC a general unsecured claim in the amount of $47,855,336 in connection with its rejection damages under the head lease and related agreements.
Original Story 6:04 a.m. EDT 3/25/2016:Relevant Documents:Motion to Assume Codeshare AgreementsDIP Financing MotionPress Release
On Thursday evening, Republic Airways announced an agreement with Delta Air Lines to both restructure the parties’ codeshare relationship and
$75 million in DIP financing to be provided by Delta. The agreements with Delta include “substantial and interrelated operational and economic benefits,” which include a consensual wind down of the single class ERJ aircraft, return of full flying of 30 E170s and E175s, an increase in reimbursement rates under its dual class agreement, compensation for certain slot lease agreements and modifications to the parties’ ground handling agreement. Further, Delta will provide $75 million in DIP financing for liquidity in support of Republic’s restructuring plan.
Republic says that the new relationship will “deliver immediate improvements in profitability and cash flow for Republic.” The proposed transaction, the debtors add, “represents a comprehensive resolution with Delta, one of Republic’s code-share partners and lessees, and will enhance Republic’s profitability beginning immediately upon entry of orders for relief and for the next decade or more.” The debtors assert that the integrated transactions will provide them with “hundreds of millions” of dollars in increased revenue.
According to the filings, the motions to assume the codeshare agreements and approve the DIP financing are “interdependent with and cross-conditioned on approval of” the other. The proposed DIP financing and assumption would be effective only on simultaneous entry of orders approving both motions. The debtors assert that any attempted reversal or modification of the requested relief would “undermine the validity of these transactions in their entirety.”
The Delta motions were filed alongside a new round of fleet rationalization motions. Below are summaries of last night’s filings.
Motion to Assume Codeshare Agreements
Through the global settlement with Delta, the debtors intend to streamline operations under a single aircraft type and under a single operating certificate, and attempt to obtain similar agreements with their other codeshare partners. According to the motion, Delta will adjust its flight schedules through the summer and fall seasons to account for the reduced operations and enter into agreements with other regional carriers to provide aircraft and flying to substitute for the reduced flying during an agreed to wind-down schedule with Republic. Republic notes that it currently has about 120 pilots deployed on the “out-of-favor” single class ERJ aircraft, but that the wind down would allow Republic to train and transition its pilots away from the ERJ to the dual class aircraft, E170/175, which it says is the “future of Republic’s operations.” The projected end date of the wind down is redacted, but the motion discloses that the date may be extended by mutual agreement through December 2016.
The debtors also say that Delta has agreed to a “substantial” increase in rates, which will cover Republic’s cost of flying during the wind down. The wind down would also reduce the claims of the ERJ aircraft financiers, according to the debtors, because Republic will continue to operate these aircraft beyond the May 31, 2016 period that was previously contemplated. The amended agreements would allow for the retention of about 1,300 (20%) of Republic’s employees. Other benefits highlighted by the debtors include an amended rate reset provision that they say “decreases Republic’s exposure to risk that it will be unable to meet costs over the next five years by advancing the reset by one year[.]” Portions of the motion are redacted with respect to these particular provisions but also refer to improvements to changes to base rate costs and an increase in liquidity as a result of changes to the slot lease.
The principal terms of the agreement are as follows:
- Assumption of the amended single class agreement, the amended dual class agreement, entry into the A&R slot lease (provides for the lease by Republic to Delta of 13 slots at LaGuardia airport), assumption of the LGA 2 slot lease and the amended ground handling agreement.
- Settlement of the litigation that Delta brought against the debtors in Georgia state court that was later removed to the U.S. District Court for the Northern District of Georgia, in which Delta alleges that the debtors breached their agreements with Delta, and asserts damages in excess of $1 billion.
- Delta would have an allowed $170 million prepetition general unsecured claim, subject to upward adjustment depending on whether similar claims of Republic’s other codeshare partners receive more favorable treatment.
DIP Financing Motion
Republic also requests approval of a $75 million DIP multiple-draw term loan facility from Delta. The DIP loan would be secured by:
- First priority liens on (i) one Embraer E170 regional jet aircraft, equipped with two General Electric CF34-8 engines, (ii) ten CFM34-8 engines and (iii) all other unencumbered assets of the debtors.
- First priority consensual priming lien on 15 specified individual LaGuardia airport arrival and departure slots.
- Junior liens on the debtors’ encumbered assets.
The debtors also propose DIP liens on proceeds of avoidance actions and that Delta would be granted a superpriority administrative expense claim.
The DIP loan bears interest of 5.75%, and 7.75% for the default rate. The loan matures on the earliest of one year from entry of the DIP order, consummation of a sale or substantial consummation of a plan. The DIP financing includes a 1% upfront fee and a 1% commitment fee. Covenants include that “Consolidated Liquidity” must be at least $50 million, with “Unrestricted Cash” of at least $30 million.
The DIP financing requires that a motion be filed within 60 days of the maturity date of the DIP either seeking approval of (i) a plan that would repay the DIP in full in cash and provide releases of Delta or (ii) the repayment of the DIP in full in cash by the maturity date. Delta would also have the right to credit bid with respect to a sale or plan.
As part of the DIP motion, counsel for the debtors noted Republic received five qualifying financing bids from the forty potential transaction partners, including " banks, private equity firms, hedge funds and each of Republic’s code-share partners" that the debtors investment bankers solicited. Three finalists were selected but after reviewing final terms " Republic selected the financing bid from Delta as the best bid for postpetition financing secured by the Collateral based on multiple factors, including the size and certainty of the committed amount, flexibility to draw or not draw the commitment, the applicable upfront fees and commitment fees on any undrawn amount, the applicable interest rate on drawn amounts, and the reasonableness of conditions precedent and applicable financial covenants."
Other Motions
In addition to the codeshare and DIP motions, on Thursday night, Republic filed a
motion to approve a settlement with NAC Aviation 23 to reject a fleet of 27 Bombardier DHC-8-402 airframes and related engines and propellers, and to assume and assign to NAC the related sublease with Flybe Limited. According to the motion, NAC has also agreed to assume Republic’s obligations with respect to certain vendor contracts related to the fleet. The debtors note that the aircraft proposed to be rejected, the Q400, is “out of favor” and that the rejection fits into its restructuring plan that will result in the operation of a single aircraft. The debtors also filed a
motion to approve a settlement with Export Development Canada with respect to the sale of certain spare parts collateral valued at about $7 million related to the Q400 aircraft.
Further, the debtors filed a separate
motion seeking to abandon equipment and reject releases related to several ERJ-145 and Q400 aircraft, saying that such planes are not part of the debtors’ long term business plan and that the to-be-rejected leases make less money than the debt service Republic pays on the equipment being leased. Specifically the motion seeks to abandon and transfer title to 3 Republic-owned ERJ-145 aircraft. Dougherty Air Trustee LLC is the secured party for those planes and Republic proposes that the aircraft be abandoned to Dougherty. The owned aircraft are leased by Republic to Aerolitoral S.A. de C.V., and the motin also seeks to rejection those leases. The motion also seeks to reject 7 aircraft that are leased by Republic from Dougherty, Willis Lease Finance Corp. and Export Development Canada. Finally, the motion seeks to reject subleases under the leased, to-be-rejected aircraft.
The motions will be heard on April 14 at 11 a.m. EDT, with objections due by April 7 at 4 p.m. EDT.