Northwest class A notes trustee objects to company attempt to manufacture default to avoid premium

By Caroline Salls

Pittsburgh, May 11 - Northwest Airlines Corp.'s class A notes trustee and collateral agent U.S. Bank NA objected to the company's second attempt to restructure its trust 2 senior aircraft notes without paying a related premium, according to a Thursday filing with the U.S. Bankruptcy Court for the Southern District of New York.

U.S. Bank said Northwest is trying to manufacture a default under its debt obligations to force an unwarranted acceleration and avoid paying a premium promised to creditors.

According to the objection, liquidity provider ABN Amro Bank NV, which has not advanced any funds to the trust 2 transaction since its inception in 1994, "has been signed up as the new player; its role is to terminate a liquidity facility established for the benefit of the noteholders."

As previously reported, Northwest said the trust indenture allows the owner trustee to buy all of the outstanding trust 2 notes without paying a premium if the liquidity provider issues a notice of termination, which it intends to do.

In turn, the owner trustee will buy all of the outstanding notes using Northwest funds, and the trustee will then cancel the notes.

Northwest will then take title to its trust 2 aircraft and enter into new financings for all of the aircraft.

Northwest, an Eagan, Minn.-based airline, filed for bankruptcy on Sept. 14, 2005. Its Chapter 11 case number is 05-17930.

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