April 6, 2020 – The Debtors requested Court authority to (i) access $12.0mn in debtor-in-possession (“DIP”) financing, including $6.0mn on interim basis, from its prepetition secured lenders and (ii) use cash collateral [Docket No. 13]. The proposed DIP financing also includes the roll-up of $24.0mn of prepetition debt upon issuance of a final DIP financing order.
Of particular interest in respect of this COVID-19 afflicted airline is that efforts to source DIP funding in the age of coronavirus now include discussions with state and federal authorities as to access (or in this case not) to stimulus funding. For these Debtors, weeks-long attempts to tap stimulus funds (including by submitting a CARES Act application) did not bear fruit in time to obviate a turn to prepetition lenders. Athough the Debtors do not provide detail as to whether they will ultimately to be able to do access stimulus funds, they do make it clear that such funds will be critical to their ability to survive the pandemic and emerge from chapter 11 as a going concern ("any such government relief will be a key factor to enable the Debtors to resume operations and re-hire the employees the Debtors laid off as a result of the COVID-19-related business disruptions.")
For this airline and for now, however, stimulus funding did not provide the relief necessary to avoid bankruptcy; whether that is due to their eligibility to access those funds or to the inefficient roll-out of stimulus programs remains unclear.
The motion states, “In the weeks leading up to these chapter 11 filings, the Debtors sought much-needed financing from two sources: (1) its existing lenders and investors, and (2) the State of Alaska and federal government relief packages in the form of grants, loans, or equity investments, particularly under the Coronavirus Aid, Relief, and Economic Security Act (the ‘CARES Act’). First, the Debtors engaged in extensive negotiations with its existing lenders and investors about the Debtors’ liquidity situation. In addition, the Debtors also sought to identify new sources of capital.
Through the month of March, the Debtors engaged in extensive negotiations with the Pre-petition Secured Parties regarding the future of the Debtors and their operations, their ability to weather the COVID-19 pandemic with or without assistance (including grants and loans under the CARES Act), and the willingness of the Prepetition Secured Parties to provide bridge financing in light of the foregoing. These negotiations (as well as the discussions with government officials described below) were made all the more difficult because of the inherent uncertainty regarding how long and the extent to which the current COVID-19 operating environment will last, as well as the fact that they were conducted telephonically, rather than in-person, as a result of COVID-19.
Separately, the Debtors also spoke with high-ranking representatives of the State of Alaska and the federal government. Unfortunately, by the end of March 2020, it became clear that any state or federal government financial assistance or other relief was not going to be available before the Debtors ran out of cash and had to suspend operations.
The Debtors were unable to identify an investor or lender that would provide the financing necessary for the Debtors to continue operations, either as a chapter 11 debtor-in-possession or outside of bankruptcy, other than the DIP Secured Parties and the DIP Financing. Therefore, the Debtors determined that it was in the best interests of the Debtors’ estates, creditors, and other parties-in-interest to agree to the DIP Financing and file these Chapter 11 Cases.
On April 3, 2020, the Debtors submitted applications for grants under the CARES Act. It is uncertain whether such applications will be granted or the timing of any such funding; however, the Debtors believe that any such government relief will be a key factor to enable the Debtors to resume operations and re-hire the employees the Debtors laid off as a result of the COVID-19-related business disruptions.
On April 5, 2020, prior to the filing of these Chapter 11 Cases, the Debtors laid off almost all of its remaining workforce, other than a very small number of employees necessary to the administration of these Chapter 11 Cases. In the event that government relief, under the CARES Act or otherwise, becomes available, the Debtors hope to restart operations with as many of its laid-off employees as required and funded by the CARES Act.”
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.
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The post Ravn Air Group, Inc. – Seeks $12mn ($6mn on an Interim Basis) of New Money DIP Financing from Prepetition Lenders as Efforts to Tap COVID-19 Stimulus Funds Fall Short appeared first on Daily Bankrupt Company Updates | Bankrupt Company News.