Frontier Airlines secures alternate DIP financing commitment from unsecured creditors

By Caroline Salls

Pittsburgh, Aug. 4 - Frontier Airlines Holdings, Inc. said it will move forward with an alternate commitment for $75 million in debtor-in-possession financing from unsecured creditors committee members Republic Airways Holdings, Inc., Credit Suisse Securities and AQR Capital, according to a Frontier news release.

Specifically Frontier said the new lenders are offering it up to $75 million in DIP financing, with an immediate firm funding commitment of $30 million, which will provide the company with lower financing costs, less restrictive covenants and greater flexibility to explore strategic opportunities than its previous DIP financing commitment from an affiliate of Perseus, LLC.

"The agreement by members of our unsecured creditors committee to extend this financing commitment is a tremendous vote of confidence in our company and its business plan," Frontier president and chief executive officer Sean Menke said in the release.

"After a careful examination of this offer against the offer Perseus provided last week, we believe this new agreement offers immediate access to greater liquidity under more favorable terms."

The alternate DIP facility is subject to bankruptcy court approval.

Upon court approval, the new lenders will provide immediate funding of $30 million to support Frontier's working capital needs, the release said.

The company said the lenders will consider funding an additional $45 million subject to the terms and conditions of the DIP credit agreement.

According to the release, the committee members offered to provide this improved DIP facility following Frontier's successful efforts to significantly improve its liquidity.

Over the past two weeks, Frontier said it has secured up to $80 million in additional liquidity through aircraft sales to VTB Leasing for onward lease to Rossiya Airlines and other aircraft sale leaseback transactions.

According to court documents, Wells Fargo Bank Northwest NA is the administrative agent on the new DIP facility.

Term comparison

Changes from the Perseus affiliate's commitment include:

• Frontier will receive $30 million on an interim basis under the new commitment, compared with $40 million under the previous facility;

• There is no minimum blocked cash collateral required after initial funding under the new DIP facility, compared with a $26 million requirement under the previous loan;

• Interest will be either 14% if the company elects to pay in cash or 16% if it elects to allow interest to accrue by increasing the outstanding principal amount of the loans, compared with 16.5% under the old commitment, which could only accrue by increasing the outstanding principal amount of the loans;

• The default interest rate will be 2%, compared with 19.5% under the Perseus commitment;

• The new DIP facility will mature on the earlier of April 1, 2009 or the effective date of a plan of reorganization, versus the earlier of Sept. 30, the effective date of a plan of reorganization and the occurrence of any equity investment-related triggers under the previous loan;

• The new facility's borrowing conditions do not require an investment agreement or auction;

• The voluntary prepayment increments were reduced under the new loan to $2.5 million from $5 million;

• There is no voluntary prepayment floor or early termination fee under the new DIP facility, compared with a $26 million floor and 2.5% prepayment fee after the initial funding on the previous loan; and

• The total commitment fee was reduced to $1.5 million from $2 million.

Frontier, a Denver-based airline, filed for bankruptcy on April 10 in the U.S. Bankruptcy Court for the Southern District of New York. Its Chapter 11 case number is 08-11298.

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