SAS has entered a debtor-in-possession (DIP) credit agreement of $700 million/SEK 7.0 billion with Apollo Global Management. The arrangement will be used as bridge funding while the Scandinavian airline starts its restructuring plans under Chapter 11 bankruptcy protection. SAS secures DIP funding but at a heavy cost, as the funding is secured against almost the entire company.

The airline announced the DIP agreement on August 14. Approval by the Southern District New York bankruptcy court could take another month until mid-September. Chairman Carsten Dilling is pleased with the agreement that provides SAS with sufficient cash to continue operations during the voluntary restructuring, which was announced on July 5. The selection of Apollo follows a review of 115 potential investor parties since February, when the extent of the problems at SAS became clearer by the day.

“With their (Apollo’s) substantial financing commitment, we can now focus entirely on accelerating the implementation of our SAS FORWARD plan, and to continue our more than 75-year legacy of being the leading airline in Scandinavia,” Dilling says in a media statement. The airline said earlier that it risked losing support for the DIP agreement from stakeholders unless it solved the labor issues with the pilot unions. A fifteen-day strike ended with an agreement with the unions on July 19.

In a motion to the New York court, SAS says it needs the DIP financing: “Without financing, within the next few months, the Debtors’ cash balance will drop below the minimum cash threshold necessary to comfortably operate their business. The Debtors’ access to the DIP Facility, therefore, will be particularly critical given the difficulties associated with forecasting future financial needs in this uncertain
macroeconomic environment.”

DIP made available in two terms

SAS says that the DIP financing “is structured as a delayed draw term loan with a nine-month maturity from the Closing Date. The maturity date can be extended incrementally up to an 18-month term.” The first $350 million will be made available after court approval, with the second half becoming available upon the satisfaction of certain other conditions precedent under the DIP Term Loan Agreement. The loans are interest-bearing at a rate per annum plus 9.0 percent, payable in cash or in kind at the borrower’s election. This may be increased by 2.0 percent per annum during the continuance of any event of default under the DIP Term Loan Agreement. In addition, SAS has to pay Apollo certain fees, which makes this a very expensive agreement.

SAS has guaranteed its obligations by substantially all of its property, including certain take-off and landing slots at Heathrow Airport, all shares in certain entities of the SAS group, intellectual property, and unencumbered aircraft, and engines.

The FORWARD plan includes SEK 7.5 billion in cost reductions, a capital raise of at least SEK 9.5 billion, and the reduction of SEK 20 billion in debt by converting this into new shares. The agreement entitles Apollo to subscribe to equity interests in SAS by converting DIP loans into equity. SAS intends to prepare a capital increase/rights issue in the first half of next year. If Apollo wants to buy into the airline, Apollo has agreed to negotiate with the Danish State terms and conditions under which the Danish government would acquire up to $250 million of equity interests in SAS with Apollo’s conversion of its DIP loans into new equity. Denmark is the only stakeholder that is prepared to participate in a capital increase, with Sweden and Norway only interested in a debt-for-equity swap.

SAS doesn’t rule out it needs more equity: “Because any conversion of the DIP financing commitments may be insufficient to fully meet the objectives of the equity capital raise, the Company may seek to raise the additional equity capital required to meet that level.”

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Active as journalist since 1987, starting with regional newspaper Zwolse Courant. Grand Prix reporter in 1997 at Dutch monthly Formule 1, general reporter Lelystad/Flevoland at De Stentor/Dagblad Flevoland, from 2002 until June 2021 radio/tv reporter/presentor with Omroep Flevoland.
Since mid-2016 freelance aviation journalist, since June 2021 fully dedicated to aviation. Reporter/editor AirInsight since December 2018. Contributor to Airliner World, Piloot & Vliegtuig. Twitter: @rschuur_aero.

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