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SAS AB – Court Grants Third Lengthy Set of Exclusivity Extensions for as Search for Potential Exit Sponsor Continues; with Creditors’ Committee Commenting on “Very Promising Results”

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August 10, 2023 – The Court hearing the SAS AB cases has extended (for a third time) the periods during which the Debtors have an exclusive right to file a Plan and solicit acceptances thereof, through and including November 8, 2023 and January 8, 2024, respectively [Docket No. 1335]. Absent the requested relief, the Plan filing, and solicitation periods were scheduled to expire on July 31, 2023 and September 29, 2023, respectively.

In requesting this latest set of extensions, the Debtors insisted that they have made “substantial progress,” namely in respect of advancing their search for an exit sponsor. The Debtors’ motion certainly makes it clear that they have spent “substantial effort, time, and resources” in “developing a value-maximizing exit transaction,” ie in advancing the process, but how much closer are the tight-lipped Scandinavians to actually finding sponsor(s)? 

A filing in support of the extensions form the Debtors' creditors' committee (the "Committee") [Docket No. 1331] offers more than the Debtors themselves, with the Committee commenting: "From its outset, the Committee hoped that the Equity Solicitation Process would foster competition, thereby allowing the Debtors to both maximize creditor recoveries and emerge from chapter 11 as a strong, recapitalized airline. Thus far, the process has yielded very promising results. Specifically, the Committee understands that in mid-July, the Debtors received multiple first-round proposals for potential exit transactions. In the weeks since then, the Debtors’ advisors have worked tirelessly to develop these competing bids in order to generate the exact type of competitive dynamic that the Committee hoped for at the outset of the process."

The Debtors' motion July 31st requesting motion was considerably more measured: “the Debtors, with the assistance of their advisors, including Seabury Securities LLC and Skandinaviska Enskilda Banken AB, have contacted hundreds of potential investors, executed NDAs with interested parties, and engaged in ongoing discussions with parties interested in submitting bids. This process remains ongoing – initial indications of interest were submitted on July 17, 2023 and final bids are due on September 18, 2023”; without providing much color as to the quantity/quality of what was submitted by that July 17th deadline. In their last request for a lengthy set of extensions, the Debtors referred to the process as a “market test,” designed to inform their creditors’ committee, and especially the states of Denmark and Sweden (collectively, the “States”) in advance of “the States’ cooperation and, as applicable, participation in the equity raise and regulatory approval processes.”

The involvement of the States in any exit solution was made more complicated by a May 10th decision of European General Court "annulling the Commission’s authorization of State aid received by the Debtors in connection with their 2020 recapitalization," ie calling into question whether @€1.0bn provided to the Debtors by the States during COVID was "in line with EU State aid rules." Good background here.  

Case Status

On July 5, 2022, SAS AB and 13 affiliated Debtors (“SAS” or the “Debtors”) filed for Chapter 11 protection noting estimated assets between $10.0bn and $50.0bn; and estimated liabilities between $1.0bn and $10.0bn ($1.35bn of funded debt) [NB: The Debtors add: “On a consolidated basis, as of May 31, 2022, the total value of the Debtors’ assets is approximately $12.43 billion and the total amount of the Debtors’ liabilities is approximately $9.41 billion”]. At filing, the airline cite the impact of COVID-19 as exacerbated by the Ukraine conflict and the decision of the SAS pilots to go on strike.  

On July 19th, the Debtors announced that they had reached new 5.5-year collective bargaining agreements with its pilots’ unions.

On September 9th, the Court hearing the SAS AB cases authorized the Debtors to access $700.0mn (approximately SEK 7.0bn) of DIP financing being provided by Apollo [Docket No. 331].

The Extension Motion

The motion [Docket No. 1317] states, “The Debtors have made substantial progress in these chapter 11 cases since the Court entered the Second Exclusivity Extension Order (as defined below) on April 13, 2023. During this time, the Debtors focused significant effort and resources on commencing and progressing their equity solicitation process in accordance with the procedures approved by the Court on May 15, 2023. Additionally, the Debtors have (i) advanced the cost-savings initiatives set forth in their comprehensive SAS FORWARD plan and (ii) progressed negotiations with various stakeholders and other parties in interest on the terms of a chapter 11 plan and path to emergence. Specifically:

  1. Equity Solicitation and Restructuring Negotiations. The Debtors continue to devote substantial effort, time, and resources to developing a value-maximizing exit transaction. To that end, on April 5, 2023, the Debtors filed the Motion for Approval of (I) Equity Solicitation Procedures and (II) Form and Manner of Notice Related Thereto [ECF No. 1061], requesting approval of various procedures associated with the Debtors’ equity solicitation process (the “Equity Solicitation Procedures”), which the Court approved on May 15, 2023 [ECF No. 1155]. Following approval and formal launch of the equity solicitation process, the Debtors, with the assistance of their advisors, including Seabury Securities LLC and Skandinaviska Enskilda Banken AB, have contacted hundreds of potential investors, executed NDAs with interested parties, and engaged in ongoing discussions with parties interested in submitting bids. This process remains ongoing – initial indications of interest were submitted on July 17, 2023 and final bids are due on September 18, 2023. The Debtors are working collaboratively with key stakeholders, including the Creditors’ Committee and the States (each as defined below), to review and further assess the initial indications of interest and viability of an exit transaction. The equity solicitation process is a vital component to the Debtors’ restructuring efforts, as it will allow the Debtors to identify potential investors interested in providing much needed exit capital for the Debtors to emerge from these chapter 11 cases.
  2. Cost Savings and Agreements with Key Creditor Constituents. The Debtors continue to implement additional operational initiatives to achieve their desired earning improvements and cost savings consistent with the SAS FORWARD plan. Such initiatives include engaging in lease and contract negotiations with various aircraft lessors, suppliers, and vendors. In particular, during the period since the entry of the Second Exclusivity Extension Order, the Debtors have negotiated amendments to certain critical agreements to support the Debtors’ operations with various service providers and have obtained Court approval to assume such agreements, as amended. 

The Debtors are now progressing into the final stages of these chapter 11 cases: completing the equity solicitation process and proceeding toward confirmation of a plan.

The Debtors continue to work in collaboration with the Creditors’ Committee and the States, whose cooperation and support are critical to the Debtors’ ability to efficiently restructure and obtain certain necessary regulatory approvals. Further, with the formal launch of the equity solicitation process on May 15, 2023 and submission of first-round proposals from various potential investors, the Debtors are expending significant time and resources to identify and prepare to implement a value-maximizing exit transaction for the benefit of the Debtors, their estates, and all parties in interest. On a parallel basis, the Debtors continue discussing the terms of their eventual chapter 11 plan with key stakeholders, including the Creditors’ Committee, the States, and potential bidders, as well as addressing claims, contracts, and other matters attendant to these cases.

An extension of the Exclusive Periods is thus critical to enable the Debtors to maintain a clear and consistent message to creditors, other stakeholders, and the market that the Debtors retain control of the exit capital solicitation and chapter 11 plan confirmation processes. It is important that the Debtors have the ability to maintain this messaging and control, particularly given the cross-border nature of the Debtors’ business and constituents.”

On the issue of state aid, the motion continues: "More specifically, impairment of the States’ equity and debt claims under a chapter 11 plan may constitute additional State aid, which is subject to approval by the Commission. Obtaining such approval is a process led by the States. Given the recent European General Court decision annulling the Commission’s authorization of State aid received by the Debtors in connection with their 2020 recapitalization, the Debtors’ need to work in close collaboration with the States is now more apparent than ever. The Debtors, together with the States, have been engaged in lengthy discussions with the Commission regarding resolution of the various regulatory issues arising from the decision. This work includes closely coordinating with the Commission in its consideration of both a modified decision retroactively approving the prior State aid and mitigating the risk of a similar challenge to any decision by the Commission to approve additional State aid in connection with a chapter 11 plan. This process has required, and will continue to require, extensive work by the Debtors, the States, and their respective advisors."

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The post SAS AB – Court Grants Third Lengthy Set of Exclusivity Extensions for as Search for Potential Exit Sponsor Continues; with Creditors’ Committee Commenting on “Very Promising Results” appeared first on Daily Bankrupt Company Updates | Bankrupt Company News.


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