When Silver Airways lawyers and executives entered the court of U.S. Bankruptcy Judge Peter Russin this week, they felt they finally had a clear path to wrapping up the struggling carrier’s Chapter 11 reorganization case, as well as the one involving its Caribbean affiliate, Seaborne Airlines.
They had a signed $5.75 million “stalking horse” bid with a firm with a long history of investing in troubled airlines. They also informed the judge that another buyer had signed a letter of intent to acquire Seaborne for $4 million. The would-be buyer of Seaborne has not been identified.
But during a Wednesday hearing in U.S. Banktruptcy Court in Fort Lauderdale, the judge hoisted a stop sign.
He said he was concerned that the sales could take place “on the backs” of creditors who are still owed money. They should be paid in full, he advised the company lawyers.
“I am pretty well set against the notion that a sale should be approved where [claims] are not paid in full,” Russin said.
“Lots of judges have taken similar positions,” he added. “It’s a matter of applying the bankruptcy code as it was intended to be applied.”
While Russin did not allude to it, vendors, aircraft lessors and other creditors of Spirit Airlines, the Dania Beach-based carrier that filed a “pre-arranged” Chapter 11 case last November, were paid what they were owed. And leading bondholders agreed to convert $795 million in debt to equity. Investors also kicked in $350 million in equity funding upon the airline’s exit from bankruptcy.
Slow going
The Silver and Seaborne cases have not been as clear cut.
Both filed for Chapter 11 on Dec. 30 after failing to attract debtor-in-possession financing to fund operations during the reorganization process. Instead, they relied on the largesse of its chief backer, Brigade Agency Services, which green-lighted nine interim requests for Silver to use the proceeds generated by the airline as it flies through bankruptcy..
Silver is now serving five Florida destinations including Fort Lauderdale-Hollywood International Airport, and 11 destinations in the Bahamas and the Caribbean. It was forced to drop its Orlando service when three of its planes were repossessed by their owner.
Seaborne continues to fly a single seaplane between the U.S. Virgin Islands of St. Thomas and St. Croix.
Although the airlines’ management publicly set a first-quarter goal for exiting bankruptcy, the proceedings continued through April and have entered their fifth month. Despite discussions with multiple candidates, the two airlines did not attract any buyers to acquire their assets until an affiliate of Wexford Capital of West Palm Beach and Greenwich, Conn., produced $5.5 million in financing for Silver, and then made what is known as a credit bid for $5.75 million.
But the judge wondered about where the money would come from to pay other creditors such as airports, a fuel services company and owners of the remaining eight planes that Silver is flying under lease. Early in the hearing, lawyers for several Florida airports including Fort Lauderdale-Hollywood International told the court that arrangements had been made to repay past-due fees and other charges.
Russin applauded those arrangements. However, he said the picture was still unclear about the totality of the airlines’ debts and how they would be paid.
Brian Hall of the Atlanta firm Smith, Gambrell & Russell, the lead lawyer for the two airlines, said money could be drawn from the $4 million generated by the potential sale of Seaborne.
But Barbra Parlin, an attorney from the Holland & Knight firm who represents creditors of both airlines, questioned how money from the sale of one bankruptcy estate could be used to pay any debts of another. Although a single management team oversees both companies, each airline filed separate Chapter 11 petitions with the court.
The judge said he was about to raise the same question.
“I need a clear vision — and the stakeholders need a clear vision — as to where this case goes to the very end,” Russin said.
The airline’s lawyers asked for more time to gather the information the judge needs.
Russin granted the request — giving them until early next week. He set an evidentiary hearing for Tuesday.
Steven Rossum, who is CEO of both Silver and Seaborne, declined comment.