The American body that is supposed to look after the interests of creditors strongly opposes the payment of the controversial SAS company, describing it as a “malicious” hostage-taking operation. But SAS’s creditors support it.
Late Thursday evening Norwegian time, the stage was set for another fateful SAS meeting.
This happens just a week and a half after SAS announced the winners of an auction for what would become New SAS: US investment firm Castlelake, Air France-KLM and Danish Lind Invest.
US Judge Michael Wiles will decide at a court hearing in New York on Thursday whether SAS will be allowed to pay the winning group’s $3 million claim. The claim corresponds to NOK 33 million.
The winning bidders are demanding a very rapid payment in order to proceed with negotiations with SAS at all. Among other things, a final agreement has yet to be signed.
The amount is said to cover the expenses incurred by the consultants in the bidding process.
According to SAS, there is a risk that the winners will withdraw if the judge does not approve the payment at tonight’s court hearing.
– Without reimbursement of expenses, SAS may not be able to secure the financing necessary to exit Chapter 11Chapter 11Chapter 11 is a section of the US Bankruptcy Code, which gives a company in such an arrangement temporary bankruptcy protection – to be able to restructure and refinance the company within a specified time frame..
This is what SAS petitioned to be allowed to pay.
The watchdog barks – loudly
Apollo Global, which lost the bid, has objected to paying compensation. Apollo now receives strong government support United States Trustee. This is the body that looks after the interests of creditors in bankruptcy cases.
In the USA, SAS is now under what is called bankruptcy protection (Chapter 11). Then, for a limited time, the company can operate as usual while it attempts to refinance itself under court protection.
In its filing, the US Trustee strongly opposes the payment request:
– Such a request for reimbursement of expenses is an outrageous and malicious attempt to hold the entire process of raising new shares hostage.
For fear of more demands
The state watchdog is subject to the USA Department of Justice and may be interested in the potential precedent in other bidding processes as well.
US Trustee also emphasizes that winners may claim significantly more expense coverage if their first claim is paid first.
SAS will also not recover the money it wants to pay now, if negotiations with the winning group fail, as the US trustee claims.
– This is a clear attempt by bidders to circumvent the rules of the bidding process and extract an amount they are not entitled to. (…) This changes the value of the offer by $3 million now and by an unknown amount later.
The creditors committee supports
SAS’s unsecured creditors are organized into a separate committee appointed by the US Trustee.
However, this Committee wholeheartedly supports SAS’s application to be allowed to pay. The commission writes to Judge Wells that refusing to pay could result in SAS missing out on “the highest and best offer currently available.”
They point out that unsecured creditors were promised US$325 million through the offer to cover their claims against SAS. This equates to NOK 3.5 billion.
The committee says this figure represents a huge improvement over what unsecured creditors were expected to receive based on the first indicative bids.
SAS won a partial victory on Tuesday
It remains to be seen whether the judge will listen mostly to SAS’s creditors or to the US trustee.
The SAS won an important partial victory in this battle on Tuesday. The judge then granted a motion to settle the matter in just a few days. Typically, there is a processing time for such payments of three weeks, according to US bankruptcy laws.
This gives Apollo, the losing bidder, little time to come up with a new and improved offer.
Shareholders lose anyway
The now worthless SAS share price has nearly doubled in the past two days. Presumably, the reason is that shareholders hope to provide value if today’s winning bid goes down.
But according to analyst Jacob Pedersen’s statements to Danish newspapers, there is no indication that today’s shareholders will then receive better treatment.
Even then, they stand to lose everything.
Regardless of who wins the SAS battle, they will have to deal with the Danish state as the main shareholder.
The Danes obtained the right to own about 25 percent of Nye SAS. This applies regardless of who is declared the final winner of the bidding contest.
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