Pemco World Air wins approval of DIP financing, bid procedures

By Jim Witters

Wilmington, Del., April 4 - Pemco World Air Services, Inc. received final approval on Wednesday for a $37.8 million debtor-in-possession financing facility and for bid procedures to sell the company as a going concern by the end of May.

The approvals during a hearing in the U.S. Bankruptcy Court for the District of Delaware open the way for prepetition and DIP lender Avion Services Holdings, LLC to be the stalking horse bidder with a credit bid that is to include prepetition debt, the amount of the DIP loan and any assumed liabilities.

PBGC objections

Approval of the DIP financing came over the objection of the Pension Benefit Guaranty Corp., which sought to retain the right to bring action against the prepetition lenders should its investigation uncover causes of action.

The wording of the DIP agreement agreed to by the debtors, the lenders and the official committee of unsecured creditors allowed only the creditors committee to bring challenges and only before the May 25 deadline.

PBGC attorney Shari D. Williams argued that the PBGC should be constrained only by its mandated three-year statute of limitations and should be permitted to bring actions against non-debtor parties during and after the challenge period delineated in the DIP agreement.

Williams said that while the PBGC is a constituent of the creditors committee, it is not the sole constituent, and the interests of the committee and PBGC's 1,250 pension plan participants may diverge.

"If we bring them our findings and they choose not to take action, we're stuck," Williams said.

Wendy S. Walker, representing Avion Services Holdings, LLC and Sun Aviation Services, LLC, said her clients would not lend money into a situation with an open-ended potential for litigation.

Without the DIP financing, the company would be forced into liquidation, said creditors committee attorney David M. Posner.

He said his clients want Pemco to remain a going concern, and the company needed the DIP to accomplish that.

Debtors attorney Robert S. Brady said the DIP agreement allowed PBGC to conduct its own investigation, but limited to the creditors committee the ability to bring actions. Brady also said the stipulations in the agreement protect Sun and Avion only in their capacity as lenders.

Judge Mary F. Walrath said she would not approve the DIP with the restriction on who may bring an action during the challenge period. But she overruled the PBGC objection to the May 25 deadline.

Brady, Posner and Walker agreed to amend the DIP agreement to permit any creditor to file a challenge before the May 25 deadline.

Walrath also said that if Sun and Avion fail to produce documents subpoenaed by the PBGC, it could be cause for extending the deadline beyond May 25.

DIP terms

As previously reported, the financing includes a $6 million revolving credit facility and a $31.8 million term facility.

Interest on revolving loans is 7%, and interest on term loans is Libor plus 1,350 basis points.

The facility will mature on the earliest of a date of a prepayment, June 25, acceleration of the loans and termination of the total commitment and the completion of the company's sale transaction.

The lenders also received a lien on the proceeds of any successful avoidance actions brought against anyone but themselves.

Bid procedures

If Avion is not the high bidder, Pemco will reimburse up to $500,000 of its expenses. The amount was reduced from $1 million at the request of the creditors committee.

Competing bids must include a $2 million deposit and must propose a minimum cash purchase price equal to or greater than the sum of the balance of the company's post-bankruptcy debtor-in-possession financing, the expense reimbursement and $250,000.

Bids are due by 4 p.m. ET on May 23, and the auction will be conducted on May 30.

Bids at auction must be made in minimum increments of $250,000.

A sale hearing is scheduled for June 1.

Consignment agreement

Judge Walrath also approved a consignment agreement in which Ranger Air Aviation Ltd. will market Pemco's obsolete inventory.

Under the consignment agreement, Pemco would transfer $1.5 million of its obsolete inventory to Ranger for marketing and sale to third parties.

The company believes the consigned obsolete inventory could be sold by Ranger for 40% to 70% of the book value.

Ranger has agreed not to sell the inventory for less than 70% of the book value without written permission.

Ranger will keep 30% of the gross sale price.

Pemco, a Tampa, Fla.-based company, performs large jet maintenance and repair services. It filed Chapter 11 bankruptcy on March 6 in the U.S. Bankruptcy Court for the District of Delaware. Its Chapter 11 case number is 12-10799.

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