By Chris Walsh
Monday, July 28, 2008
The investment firm providing Frontier Airlines with $100 million in bankruptcy financing won't dictate strategy, order specific job cuts or demand the elimination of specific flights.
In fact, Perseus LLC will remain relatively removed from Frontier's daily operations, and the carrier's executive team will remain in place - for now.
"It's pretty simple, we won't have day-to-day control" at this point, said Brian Leitch, Perseus's senior managing director, who is based in Evergreen and has extensive experience in airline reorganizations.
The firm, however, will exert its influence on Frontier's decisions in another key way: through the requirements, performance benchmarks, savings targets and other stipulations outlined in the financing agreements. Frontier also must maintain relatively close contact with Perseus and provide balance sheets, income statements and other financial data on a regular basis.
"We're still running the company, but any decisions we make on a regular basis need to be consistent with the business plan we presented to them and the agreement we have with them," said Frontier spokesman Steve Snyder. "It's not like we have to run every single thing past them. But every decision we make has to be guided by the covenants in the agreement."
Perseus agreed last week to provide Denver-based Frontier with $75 million in loans to help the company emerge from Chapter 11. The loans carry a 16.5 percent interest rate and are secured by all of the airline's assets.
Upon Frontier's emergence from bankruptcy, Perseus can convert the $75 million in loans into equity and pump another $25 million into the company in return for stock. The deal would give Perseus a 79.9 percent stake in - and plenty of control over - the airline. Perseus has created a company called Go Flip Go to handle the acquisition. The agreement is subject to various bankruptcy court approvals, and other parties still have the opportunity to offer a better deal.
Under the terms of the loan, Frontier must meet rolling goals over the next 12 months for earnings before taxes, depreciation, amortization and restructuring and rent costs, according to bankruptcy court documents. For the four-month period that ends in September, for instance, Frontier will have to post EBITDAR of at least $11.3 million. It will be allowed to post losses in that area in November and December, which are typically weaker months for the industry.
Perseus will give Frontier the $75 million in two rounds, both of which require the airline to have a minimum level of cash in hand. Perseus also can back out of the second round if average jet fuel prices hit $5 a gallon or higher for a 30-day period leading up to the loan's closing date.
Frontier must reduce its labor costs by an undisclosed amount, according to court documents. The carrier, however, would not say if that involves previously announced job and wage cuts or if it will be required to make additional reductions in coming months. Frontier recently announced plans to slash 17 percent of its capacity and terminate at least 569 positions.
"We are talking to the unions on the details of the Perseus deal, but we won't go into details of the talks," Snyder said.
Some observers said it appears Perseus is giving Frontier's executive team some leeway now but that the firm likely will look to exert more influence if Frontier fails to meet the requirements of the loan.
"Clearly the leash on management is fairly short," said Bill Brandt, a turnaround specialist and bankruptcy consultant in Chicago.
"My assumption is that they support the current management. But if management isn't careful with the company's money, they'll discover fairly quickly just how meddlesome (Perseus) can be."
[email protected] or 303-954-2744
Requirements in the loan package
Perseus set out these goals and savings targets for Frontier Airlines
* The carrier must hit minimum levels of earnings before interest, taxes, depreciation, amortization and restructuring and rent costs for rolling four-month periods.
* Frontier will receive the loans in two installments, one as early as August and the other as early as October. The carrier must maintain aggregate cash on hand in certain accounts of at least $26 million after receiving the first $40 million in loans. It must have $90 million in aggregate cash on hand to receive the additional $35 million.
* Perseus does not have to provide the second loan if the average cost of jet fuel exceeds $5 per gallon over a 30-day period before the proposed loan date.
* The company must follow guidelines for reporting its monthly and quarterly financial information, providing Perseus with updated information.
* Frontier must deliver "new or revised collective bargaining agreements or amendments . . . containing concessions necessary to meet labor cost reductions" reflected in its projections. It's unclear whether this involves Frontier's previously announced moves to cut jobs and temporarily reduce wages or if there are more changes ahead.
Earnings benchmarks
Month-by-month earnings targets* Frontier must meet:
September $11.3 million
October $4.5 million
November -$3.6 million
December -$8 million
January $700,000
February $1.1 million
March $22 million
April $12.8 million
May $18.3 million
June $43.8 million
July $49.3 million
August $86.2 million
© Rocky Mountain News
Monday, July 28, 2008
The investment firm providing Frontier Airlines with $100 million in bankruptcy financing won't dictate strategy, order specific job cuts or demand the elimination of specific flights.
In fact, Perseus LLC will remain relatively removed from Frontier's daily operations, and the carrier's executive team will remain in place - for now.
"It's pretty simple, we won't have day-to-day control" at this point, said Brian Leitch, Perseus's senior managing director, who is based in Evergreen and has extensive experience in airline reorganizations.
The firm, however, will exert its influence on Frontier's decisions in another key way: through the requirements, performance benchmarks, savings targets and other stipulations outlined in the financing agreements. Frontier also must maintain relatively close contact with Perseus and provide balance sheets, income statements and other financial data on a regular basis.
"We're still running the company, but any decisions we make on a regular basis need to be consistent with the business plan we presented to them and the agreement we have with them," said Frontier spokesman Steve Snyder. "It's not like we have to run every single thing past them. But every decision we make has to be guided by the covenants in the agreement."
Perseus agreed last week to provide Denver-based Frontier with $75 million in loans to help the company emerge from Chapter 11. The loans carry a 16.5 percent interest rate and are secured by all of the airline's assets.
Upon Frontier's emergence from bankruptcy, Perseus can convert the $75 million in loans into equity and pump another $25 million into the company in return for stock. The deal would give Perseus a 79.9 percent stake in - and plenty of control over - the airline. Perseus has created a company called Go Flip Go to handle the acquisition. The agreement is subject to various bankruptcy court approvals, and other parties still have the opportunity to offer a better deal.
Under the terms of the loan, Frontier must meet rolling goals over the next 12 months for earnings before taxes, depreciation, amortization and restructuring and rent costs, according to bankruptcy court documents. For the four-month period that ends in September, for instance, Frontier will have to post EBITDAR of at least $11.3 million. It will be allowed to post losses in that area in November and December, which are typically weaker months for the industry.
Perseus will give Frontier the $75 million in two rounds, both of which require the airline to have a minimum level of cash in hand. Perseus also can back out of the second round if average jet fuel prices hit $5 a gallon or higher for a 30-day period leading up to the loan's closing date.
Frontier must reduce its labor costs by an undisclosed amount, according to court documents. The carrier, however, would not say if that involves previously announced job and wage cuts or if it will be required to make additional reductions in coming months. Frontier recently announced plans to slash 17 percent of its capacity and terminate at least 569 positions.
"We are talking to the unions on the details of the Perseus deal, but we won't go into details of the talks," Snyder said.
Some observers said it appears Perseus is giving Frontier's executive team some leeway now but that the firm likely will look to exert more influence if Frontier fails to meet the requirements of the loan.
"Clearly the leash on management is fairly short," said Bill Brandt, a turnaround specialist and bankruptcy consultant in Chicago.
"My assumption is that they support the current management. But if management isn't careful with the company's money, they'll discover fairly quickly just how meddlesome (Perseus) can be."
[email protected] or 303-954-2744
Requirements in the loan package
Perseus set out these goals and savings targets for Frontier Airlines
* The carrier must hit minimum levels of earnings before interest, taxes, depreciation, amortization and restructuring and rent costs for rolling four-month periods.
* Frontier will receive the loans in two installments, one as early as August and the other as early as October. The carrier must maintain aggregate cash on hand in certain accounts of at least $26 million after receiving the first $40 million in loans. It must have $90 million in aggregate cash on hand to receive the additional $35 million.
* Perseus does not have to provide the second loan if the average cost of jet fuel exceeds $5 per gallon over a 30-day period before the proposed loan date.
* The company must follow guidelines for reporting its monthly and quarterly financial information, providing Perseus with updated information.
* Frontier must deliver "new or revised collective bargaining agreements or amendments . . . containing concessions necessary to meet labor cost reductions" reflected in its projections. It's unclear whether this involves Frontier's previously announced moves to cut jobs and temporarily reduce wages or if there are more changes ahead.
Earnings benchmarks
Month-by-month earnings targets* Frontier must meet:
September $11.3 million
October $4.5 million
November -$3.6 million
December -$8 million
January $700,000
February $1.1 million
March $22 million
April $12.8 million
May $18.3 million
June $43.8 million
July $49.3 million
August $86.2 million
© Rocky Mountain News
