Republic, Delta Accords Face Objections in Bankruptcy
April 15 2016 - 2:50PM
Dow Jones News
Delta Air Lines Inc.'s offer of $75 million to fund Republic
Airways Holdings Inc.'s chapter 11 case has run into trouble with
shareholders and the federal government, which complain the
financing terms offer Delta extraordinary, and possibly illegal,
protections.
In an objection filed Thursday, U.S. Attorney Preet Bharara said
the financing terms would "impermissibly protect Delta," may be
"unlawful" and should therefore be denied the bankruptcy court's
approval.
Republic shareholders also urged the court to deny the
financing, which in conjunction with a related settlement between
Delta and Republic they say would give Delta "enormous power" in
Republic's chapter 11 case. Through code-share agreements, Republic
operates flights for Delta and other large carriers.
"Granting that power to Delta should not be considered lightly,"
the shareholders said in court papers filed Thursday.
As of Monday, court papers show the shareholder group included
funds managed by Axar Capital Management, Fortress Investment Group
LLC and Trishield Capital Management LLC.
The shareholders say better financing terms are available to
Republic, including those of a rival bankruptcy loan they have
offered to the company. Their loan is cheaper and gives the company
more flexibility, the shareholders say, yet wasn't given the
company's full consideration.
A Republic bankruptcy attorney couldn't immediately be reached
for comment Friday.
Last month, Republic announced it had reached an agreement with
Delta on the $75 million financing package as well as to settle
Delta's lawsuit over the grounding of some of the flights Republic
operated for Delta. The deal not only resolves the litigation but
also preserves their code-share relationship, while allowing
Republic to wind down its flying of the small jets that have fallen
out of favor.
According to Republic, the financing and settlement deals are
dependent upon each other, so failing to secure court approval for
one deal would doom the other. In court papers, Republic says the
deals will enhance its profitability and represent its "first major
step forward" in achieving the business goals of its
restructuring.
Stepping forward to urge the court to slow down the settlement
and financing are the official committee representing Republic's
unsecured creditors and the International Brotherhood of Teamsters
union, which on Friday filed papers asking the U.S. Bankruptcy
Court in Manhattan to push back next week's hearing on the
deals.
The unsecured creditors say the Delta code-share deal could
affect Republic's ability to negotiate similar deals with its other
code-share partners, such as American Airlines Group Inc. and
United Continental Holdings Inc.
Indianapolis-based Republic sought chapter 11 protection Feb.
25, blaming such challenges as a U.S. pilot shortage that have made
it difficult to meet its obligations to its code-share
partners.
Write to Jacqueline Palank at jacqueline.palank@wsj.com
(END) Dow Jones Newswires
April 15, 2016 14:35 ET (18:35 GMT)
Copyright (c) 2016 Dow Jones & Company, Inc.
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