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Air Berlin Bankruptcy - European Distressed Debt

Summary

On August 24th, One Square Advisors organized a conference call to discuss Air Berlin bankruptcy and its implications for bondholders

Here is a short summary of the call, including my own commentary, in brackets [.]

On August 24th, One Square Advisors organized a conference call to discuss Air Berlin bankruptcy and its implications for bondholders. 

One Square Advisors is an independent restructuring boutique, that is already involved with some of the most recent German restructurings, such us Praktiker, Pfleiderer, Primacom, Voerdal, Solarworld and PHP. 

It is obviously in their interest to try represent bondholders in this case, too. 

One Square Advisors has partnered with an international law firm to better assist their (potential) customers. 

Structure of Air Berlin:

Air Berlin plc - London - guarantees AB debt; 

Air Berlin - Berlin - operating unit

AB is now in self administration, which means that management is allowed to handle day-to-day operations, under the supervision of a CIO. [probably the German equivalent of a Chapter 11 procedure, although US Chapter 11 has clear rules, for example on 363 sales, etc., while the situation seems a bit more discretionary in this case]. 

There is an AB creditor committee, which is composed at the moment of 4 members. This committee acts a s supervising board to AB's self  administration. Workforce representatives involved. 

Bondholders are not represented in this committee, and One Square Advisors hopes to become their representative.

The German government has granted a €150 million bridge loan to AB, probably to the operating unit (not sure, though). 

AB has a cash burn of € 77 million per month, at the moment. 

The German government bridge loan may not be enough to cover AB needs, and another loan may be necessary in the future - from the government itself or other private sources (hedge funds, etc.). One Square Advisors actually asked to all participants to the conference call if anyone interested [!]. 

There are several bidders to AB [as we know]. 

Lufthansa - which may have some cartel issues, given its position in the German market. They may be interested in up to 88 airplanes

Easy Jet - that was already doing some diligence 

Condor

Ryan Air [might be interested in having access to data room, mainly, and some slots] 

aviation entrepreneur Hans Rudolf Wöhrl - who could buy AB in total, which is the best scenario for AB bondholders

Ethiad 

Some time was devoted to analyzing Etihad's commitment to support AB. this legal analysis is complicated, but could lead to claims against Etihad or AB management. 

Given Etihad position as a shareholder, Etihad's convertible bonds [owned by Ethiad] could be granted a lower ranking in recovery compared to other bonds [it sounds like because of some sort of German law in insolvency]. 

Main assets 

NIKI - but the asset may be already sold

slots - how much are they worth? it sounds like AB gave an indication that they could be worth €176 million, but this number was brought down to € 80 million in more recent financial reports [to be checked]. 

However, European laws do not allow individual sales of slots, which can create a problem in their evaluation. 

Someone buying AB as a whole would obviously ensure ownership of the slots. 

Liabilities - waterfall analysis 

Cost of the administration - estimated within € 10 to €20 million 

Senior bridge loan - € 150 million 

Banks, etc. 

Secured creditors (there may not be any, not clear)

Unsecured- among them bondholders 

€ 170 million have to be paid in full before taking any other repayment into consideration 

Options for bondholders - 

try to get on the creditors committee (One Square Advisors proposes to represent them) to better control AB's developments/wind down 

start a claim against Etihad 

await recovery from bk. 

Not known at this stage how many bonds Etihad owns, in total. not public info. 

Dusseldorf - best slots 

other slots - not so good. 

uncertainty about the enforceability of Etihad letter of support. not a hard commitment to finance. 

Auditors did not rely on Etihad support in their commentary. negative for bh. 

There was a long discussion about the bonds not issued by AB directly, but mentioned as their debt on some statements. not known if they represent a liability, legally. 

Q&A

Jefferies: 

What about the prepayments received by AB (quite a large sum, € several hundred million) [most, but not all, pre-payments for tickets]

A: legally, AB could refuse to perform [this could mean the end for the brand]

Q: What happened to AB cash, last figure known in the € 140 million? 

A: probably all gone, given AB's cash consumption of € 77 million / month at the moment. 

Q: Etihad letter of support had a time frame, could this be helpful in a lawsuit? 

A: probably, hard to say for sure 

Q: Claim against CEO, management, etc. given their misleading comments about AB financial position. 

A: need to check insurance to see how much € could be involved. 

Didn't take my questions. 

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

Additional disclosure: No position on AB debt.