Opinion
Case No. 04-13819-SSM, Jointly Administered.
September 12, 2004.
Brian P. Leitch, Esq., Daniel M. Lewis, Esq., Michael J. Canning, Esq., ARNOLD PORTER LLP, Denver, CO, and Washington, DC, and New York, Lawrence E. Rifken, Esq. (VSB No. 29037), Douglas M. Foley, Esq. (VSB No. 34364), McGUIREWOODS LLP, McLean, Virginia, Counsel to the Debtors and Debtors-in-Possession.
Robert Coulter, Esq., Assistant United States Attorney, Civil Division, U.S. Department of Justice, and Andrea Horowitz Handel, Brendan Collins, Commercial Litigation Branch, Civil Division, U.S. Department of Justice Washington, D.C., Steven J. Reisman, Daniel R. Lenihan, CURTIS, MALLET-PREVOST, COLT MOSLE LLP, New York, New York, Attorneys for the ATSB as Government Guarantor of the Tranche A Loans.
David S. Walls, David L. Eades, Stephen E. Gruendel, MOORE VAN ALLEN, PLLC, Charlotte, N.C., and Monique D. Almy, Steven Tave, SWIDLER BERLIN FRIEDMAN, LLP, Washington, DC, Attorneys for the Collateral Agent, the Agent, and Bank of America as a Tranche B Lender.
Upon the Debtors' Motion for Bridge, Interim and Final Orders (1) Authorizing the Debtors to Use Cash Collateral; (2) Providing Adequate Protection; (3) Scheduling a Final Hearing; (4) Approving Form and Manner of Notice; and (5) Granting Related Relief (the "Motion"), wherein the Debtors moved this Court for, among other things, the entry of a bridge order authorizing the Debtors' use of Cash Collateral on an emergency basis (the "Bridge Relief"), and after notice and a hearing on the Bridge Relief, the Court finds, subject to the terms and conditions hereof, that (i) the Bridge Relief requested in the Expedited Hearing Motion and the Motion is in the best interests of the Debtors, their estates and their creditors; (ii) the Bridge Relief requested in the Motion is necessary to provide the Debtors with sufficient cash to continue operations and to preserve the going concern value of their businesses; (iii) for purposes of the Bridge Relief, proper and adequate notice of the Expedited Hearing Motion and Motion has been given and that no other or further notice is necessary; and (iv) upon the record herein, after due deliberation thereon, good and sufficient cause exists for the granting of the Bridge Relief as set forth herein.
Unless otherwise defined herein, all capitalized terms shall have the meaning ascribed to them in the Motion.
The Debtors and the ATSB Lender Parties represent to the court that:
Background
A. On September 12, 2004 (the "Petition Date"), the Debtors commenced these chapter 11 cases (the "Cases") by filing voluntary petitions for relief under chapter 11 of the Bankruptcy Code in this Court.
B. The Debtors have continued in the management and operation of their businesses as debtors in possession pursuant to sections 1107 and 1108 of the Bankruptcy Code. No trustee or examiner has been appointed in these Cases, and no official committee of unsecured creditors has been formed as of the date hereof.
C. This Court has jurisdiction, pursuant to 28 U.S.C. §§ 157(b) and 1334, over these Cases, and over the persons and property affected hereby. Consideration of the Motion constitutes a core proceeding as defined in 28 U.S.C. § 157(b)(2). The statutory predicates for the relief sought herein are sections 105, 361, 363 and 507 of the Bankruptcy Code and Rule 4001 (b) and (d) of the Federal Rules of Bankruptcy Procedure. Venue of the Cases in this Court is proper pursuant to 28 U.S.C. §§ 1408 and 1409.
ATSB Loan and Cash Collateral
D. On March 31, 2003, the Debtors emerged from their prior bankruptcy cases before this Court (jointly administered as case no. 02-83984-SSM) in accordance with the "Findings of Fact, Conclusions of Law, and Order under 11 U.S.C. §§ 1129(a) and (b) Fed.R.Bankr.P. 3020 Confirming the First Amended Joint Plan of Reorganization of US Airways Group, Inc. and its Affiliated Debtors and Debtors-in-Possession, as Modified" entered by this Court on March 18, 2003 (as subsequently modified and in effect, the "Confirmation Order").
E. Upon the Debtors' emergence from the prior bankruptcy cases, US Airways, Inc. ("USAI") obtained a One Billion Dollar ($1,000,000,000) loan from various lenders (the "ATSB Loan"), $900 million of which is guaranteed by the Air Transportation Stabilization Board (the "ATSB") in accordance with the Air Transportation Safety and Stabilization Act. The ATSB Loan includes a Nine Hundred Million Dollar ($900,000,000) Tranche A loan (the "Tranche A Loan"), the portion of the ATSB Loan that is guaranteed by the ATSB, and a One Hundred Million Dollar ($100,000,000) Tranche B loan (the "Tranche B Loan").
F. The initial Lenders were Kitty Hawk Funding Corporation, which funded the entire Tranche A Loan as Primary Tranche A Lender (together with its assigns, the "Tranche A Lender"); Bank of America, N.A. ("Bank of America"), which funded $25 million of the Tranche B Loan, and the Retirement Systems of Alabama Holdings LLC ("RSA"), which funded the remaining $75 million of the Tranche B Loan (together, the "Tranche B Lenders"). Kitty Hawk Funding Corporation subsequently assigned its position and rights as Tranche A Lender to the YC SUSI Trust.
G. The ATSB Loan is evidenced by that certain Loan Agreement dated as of March 31, 2003 (as amended, the "Loan Agreement") among USAI, US Airways Group, Inc. and the Subsidiary Guarantors from time to time party thereto (the "Guarantors"), the Tranche A Lender and Tranche B Lenders (collectively, the "Lenders"), Phoenix American Financial Services, Inc., as Loan Administrator (the "Loan Administrator"), Bank of America, N.A., as Agent for the Lenders (in such capacity, the "Agent"), as Agent for the Tranche A Lender (in such capacity, the "Tranche A Agent"), and as Collateral Agent (in such capacity, the "Collateral Agent" and, together with the Agent and the Tranche A Agent, the "Agents") and the ATSB. The Lenders, the Agents and the ATSB are collectively referred to hereinafter as the "ATSB Lender Parties".
H. As authorized by the Air Transportation Safety and Stabilization Act, the ATSB guaranteed the Tranche A Loan ($900 million) pursuant to a Guarantee Agreement entered into among the Agent, the Lenders and the ATSB on March 31, 2003 (the "Guarantee").
I. The ATSB Loan was and is secured, pursuant to the terms of a number of collateral agreements (the "Collateral Agreements") entered into by one or more of the Debtors, by a wide range of assets owned by such Debtors. This collateral includes, among other things, as more specifically identified in the various Collateral Agreements, certain aircraft and engines, equipment and parts, flight simulators, airport takeoff and landing slots, real property, inventory, accounts receivable, bank accounts and other cash assets, and investment properties and proceeds thereof (collectively, the "Pre-Petition Collateral").
J. Pursuant to section 552(b) of the Bankruptcy Code, the Pre-Petition Collateral includes, without limitation, all proceeds, products and profits of the Pre-Petition Collateral, whether existing before or after the commencement of the Cases.
K. The Confirmation Order provides that the liens on the Pre-Petition Collateral securing the ATSB Loan constitute legal, valid and duly perfected first priority liens and security interests, not subject to avoidance and junior and subordinate only to certain liens and security interests permitted under the Loan Agreement. The ATSB Lender Parties assert, and the Debtors acknowledge and agree, that the Collateral Agreements create valid, binding, enforceable (other than in respect of the stay of enforcement arising from section 362 of the Bankruptcy Code) and perfected liens in the Pre-Petition Collateral and Cash Collateral pursuant to the terms of the Confirmation Order and the Collateral Agreements, and are not subject to avoidance or subordination pursuant to the Bankruptcy Code or applicable non-bankruptcy law.
L. After application of certain payments that have been made by USAI on account of the ATSB Loan, the current outstanding principal balance of the ATSB Loan is $717,567,888 (together with all interest, fees, charges and expenses accrued or to accrue, and which are payable in accordance with the Loan Agreement, the "ATSB Loan Obligations"). Of this principal amount, $645,811,098.76 is outstanding in respect of Tranche A Loan and $71,756,788.75 is outstanding in respect of the Tranche B Loan.
M. The ATSB Lender Parties assert, and the Debtors acknowledge and agree, that (i) the ATSB Loan constitutes a legal, valid and binding obligation of the Debtors, enforceable in accordance with its terms (other than in respect of the stay of enforcement arising from section 362 of the Bankruptcy Code), (ii) no offsets, defenses or counterclaims exist to the currently outstanding ATSB Loan Obligations, and (iii) no portion of the currently outstanding ATSB Loan Obligations is subject to avoidance or subordination pursuant to the Bankruptcy Code or applicable non-bankruptcy law.
N. The ATSB Lender Parties assert, and the Debtors acknowledge and agree, that the Debtors currently have Unrestricted Cash (as defined in the Loan Agreement), composed of cash and cash equivalents, with a value in excess of $745 million in which the ATSB Lender Parties hold, by and through the Collateral Agent, a valid, perfected first priority security interest. The ATSB Lender Parties and the Debtors agree that such Unrestricted Cash therefore constitutes "cash collateral" under section 363 of the Bankruptcy Code (the "Cash Collateral"). Such Cash Collateral comprises substantially all of the unrestricted cash and cash equivalents available to support the Debtors' continued operations.
O. An immediate need exists for the Debtors to have access to the Cash Collateral in order to continue their operations, meet their payroll and other necessary, ordinary course business expenditures, acquire goods and services, and administer and preserve the value of their estates, and maintain adequate access to cash in amounts customary and necessary for companies of this size in this industry to maintain customer and vendor confidence. The ability of the Debtors to finance their operations by way of working capital requires their access to their cash resources, the absence of which would immediately and irreparably harm the Debtors, their estates, and their creditors. The Debtors require these cash resources to operate their businesses, to preserve the confidences of vendors, suppliers and customers, and to preserve the going concern value of their businesses.
P. The Bridge Relief requested in the Motion is, subject to the terms and conditions hereof, necessary, essential, and appropriate for the continued operation of the Debtors' businesses and the preservation of their estates and of going concern values.
Q. It is in the best interest of Debtors' estates to grant the Debtors immediate access to Cash Collateral, subject to the terms and conditions hereof.
R. The ATSB Lender Parties assert, and the Debtors acknowledge and agree that, the ATSB Lender Parties also possess valid, perfected, and enforceable security interests in substantial collateral other than the Cash Collateral. The Debtors acknowledge that the aggregate value of all the Pre-Petition Collateral (including the Cash Collateral) pledged to the ATSB Lender Parties as security for the ATSB Loan Obligations is, as of the Petition Date, more than the outstanding balance of the ATSB Loan Obligations.
S. The Debtors have requested that the ATSB Lender Parties consent to the Debtors' use of the Cash Collateral and the other Pre-Petition Collateral pursuant to the terms and conditions of this Bridge Order during the Bridge Cash Collateral Period (as defined below). The Debtors acknowledge and stipulate that the ATSB Lender Parties are entitled to adequate protection pursuant to sections 361 and 363(e) of the Bankruptcy Code with respect to the Pre-Petition Collateral, including without limitation to compensate such ATSB Lender Parties for any loss or diminution in value resulting from the use of the Cash Collateral, the use, sale or lease of the Pre-Petition Collateral and the imposition of the automatic stay during the Bridge Cash Collateral Period.
T. Subject to the entry of and continued effectiveness of this Bridge Order, the ATSB Lender Parties have consented, and directed the Collateral Agent not to object, to the Debtors' use of the Pre-Petition Collateral, including the Cash Collateral, during the Bridge Cash Collateral Period.
U. Prior notice of the request for the entry of the Bridge Order and the Bridge Relief requested in the Motion was given by telecopy, electronic mail, overnight delivery service, hand delivery or regular mail to (i) the office of the United States Trustee for the Eastern District of Virginia, (ii) the Agent, Collateral Agent and Bank of America as a Tranche B Lender and counsel, (iii) the Tranche A Lender and Tranche A Agent and counsel, (iv) the RSA and counsel; (v) the ATSB and counsel; (vi) the United States Department of Justice; and (vii) the Loan Administrator and counsel (the "Initial Notice Parties"). V. The Debtors have requested immediate entry of an Order of this Court approving the Bridge Relief (the "Bridge Order") pursuant to Bankruptcy Rule 4001(b)(2), and the undersigned ATSB Lender Parties have consented to such relief. Good and sufficient cause has been shown for the entry of this Bridge Order. Among other things, the entry of this Bridge Order is in the best interests of the Debtors, their creditors and their estates because it will enable the Debtors to (i) continue the orderly operation of their businesses and avoid an immediate shutdown of operations; (ii) meet their obligations for payroll, necessary ordinary course expenditures, and other operating expenses; and (iii) obtain needed goods and services, (iv) retain customer, supplier and employer confidence by demonstrating that they have the financial ability to maintain normal operations; and (v) maintain adequate cash resources customary and necessary for companies of this size and in the industries in which they operate to maintain customer confidence, thereby avoiding immediate and irreparable harm to the Debtors' estates, pending entry of an interim order for relief.
W. The Debtors, the ATSB Lender Parties, and their respective agents and employees have acted in good faith in negotiating, consenting, and agreeing to the Debtors' use of Cash Collateral as contemplated and provided by this Bridge Order. The negotiation of the terms and provisions of this Bridge Order have been conducted at arms' length, and the Debtors believe such terms and provisions are fair and reasonable under the circumstances and reflect the Debtors' exercise of reasonable business judgment consistent with the Debtors' fiduciary duties.
NOW, based upon the Motion of the Debtors, the foregoing representations and good cause appearing therefor,
IT IS ORDERED, ADJUDGED AND DECREED that:
(1) The Motion is GRANTED with respect to Bridge Relief as set forth herein.
Period of Bridge Relief
(2) Notwithstanding any provision of the Bankruptcy Code or the Bankruptcy Rules to the contrary, this Bridge Order shall take effect immediately upon signature and shall remain in effect until the earlier of the close of business on September 13, 2004, or (ii) the entry or denial of an interim order (the "Interim Order") authorizing the Debtors' continued use of Cash Collateral (such period being referred to as the "Bridge Cash Collateral Period").
Authorized Use of Cash Collateral
(3) The Debtors are hereby authorized to use Cash Collateral during the Bridge Cash Collateral Period to pay the ordinary, reasonable and necessary expenses of continuing to operate their businesses, subject to the conditions and limitations set forth below.
Adequate Protection for ATSB Lender Parties For Debtors' Use of Cash Collateral
(4) In each case as adequate protection for, and to the extent of the diminution in value of, the ATSB Lender Parties' interests in the Pre-Petition Collateral resulting from the Debtors' use of Cash Collateral and the other Pre-Petition Collateral and the imposition of the automatic stay pursuant to section 362 of the Bankruptcy Code during the Bridge Cash Collateral Period:
(a) The Debtors hereby grant, assign and pledge to the Collateral Agent, for the ratable benefit of the ATSB Lender Parties, valid, perfected and enforceable liens and security interests (the "Replacement Liens") in (i) all property owned by any of the Debtors as of the Petition Date in which the Collateral Agent does not hold a valid, enforceable and perfected lien or security interest and the proceeds therefrom, and (ii) all property which becomes part of the Debtors' estates on or after the Petition Date and the proceeds therefrom (collectively (i) and (ii) together being the "Replacement Collateral"), which property shall include, without limitation, (A) any accounts receivable acquired by the Debtors on or after the Petition Date, and (B) any cash or cash equivalents acquired by the Debtors on or after the Petition Date, which cash or cash equivalents shall be deemed Cash Collateral and subject to the protections of section 363 of the Bankruptcy Code; provided, however, that such Replacement Liens shall not extend or apply to any interest of the Debtors (i) in any aircraft or engine, including all parts, substitutions, renewals and replacements of, improvements, accessions and accumulations incident to each such aircraft or engine, to the extent such aircraft or engine constitutes equipment of the type described in section 1110(a)(3) of the Bankruptcy Code (a "Section 1110 Asset"), or (ii) any other encumbered asset with respect to which the granting of any such Replacement Lien would cause a default of any financing, lease or similar agreement governing a Section 1110 Asset or a default under any other agreement which would result in a default under any financing, lease or similar agreement directly or indirectly governing a Section 1110 Asset.
For the avoidance of doubt, notwithstanding any other term or provision of this Bridge Order, the Replacement Collateral shall not include any assets which are governed by Trust Agreements, as such term is defined in the Loan Agreement.
(b) The Replacement Liens granted hereunder shall be valid, perfected, and enforceable against the Replacement Collateral without further filing or recording of any document or instrument or the taking of any further actions. The Replacement Liens granted hereunder shall be subject and subordinate in priority to those liens, security interests and other encumbrances, existing as of the Petition Date, or which attach to the Replacement Collateral, which are valid, perfected, enforceable and unavoidable and which are otherwise senior to the liens in favor of the ATSB Lender Parties. The Replacement Liens shall be valid and enforceable against any trustee appointed in any of the Cases, or in any prior or subsequent proceeding affecting the Debtors, including any conversion of any of the Cases to a liquidation under chapter 7 of the Bankruptcy Code.
(c) In the event that, as a result of the Debtors' use of Cash Collateral as granted herein or the imposition of the stay pursuant to section 362 of the Bankruptcy Code, during the Bridge Cash Collateral Period, and, if notwithstanding the Replacement Liens granted herein, the collateral (including the Pre-Petition Collateral, Replacement Collateral, and Cash Collateral) proves insufficient to repay the ATSB Loan Obligations in full, the ATSB Lender Parties (as their respective interests appear) shall have an administrative expense claim under section 507(b) of the Bankruptcy Code with priority over all other administrative expense claims (the "Super-Priority Claim"). Such Super-Priority Claim is hereby granted (without the need to file any further, notice or pleading, or to make any demand) as an allowed claim pursuant to section 507(b) of the Bankruptcy Code, limited in amount to the aggregate diminution in value of the ATSB Lender Parties' interests in the Pre-Petition Collateral after the Petition Date, senior to all other priority or superpriority claims in these bankruptcy cases.
(5) None of the ATSB Lender Parties shall take any action during the Bridge Cash Collateral Period to seize or take control over any of the Cash Collateral or the Debtors' other property, nor shall they impose freezes of assets or seek to exercise any alleged right of setoff or recoupment, or exercise any other right or remedy against the Pre-Petition Collateral, the Replacement Collateral or the Debtors' other property during the Bridge Cash Collateral Period; provided, that Bank of America may impose customary administrative holds on any commercial bank accounts and other commercial transactions, including without limitation ACH transfers, credit card processing, and other similar transactions, pending the entry of first day orders of the Court governing such matters. Notwithstanding the above, nothing in this paragraph 6 shall impair the rights of any federal agency or entity other than the ATSB in this regard.
Termination of Debtors' Ability to Use Cash Collateral
(6) The Debtors' ability to use Cash Collateral will terminate immediately upon the expiration of the Bridge Order as provided in Paragraph (2), other than due to the entry of the Interim Order or any other order of the Court approving the Debtors' use of cash collateral.
(7) The provisions of this Bridge Order shall be binding upon and inure to the benefit of the Debtors, the ATSB Lender Parties, any Official Committee, and any trustee subsequently appointed for the estates of any of the Debtors, whether in the chapter 11 cases or in the event of any conversion of any chapter 11 case to a liquidation administered under chapter 7 of the Bankruptcy Code. Such binding effect is an integral part of the Bridge Order.
(8) This Bridge Order shall constitute findings of fact and conclusions of law and shall take effect and be fully enforceable immediately upon execution hereof.
NOTICE OF INTERIM HEARING
(9) Following entry of this Bridge Order, the Debtors shall immediately make reasonable efforts to provide notice of the Motion, a copy and notice of the Interim Hearing to (i) each of the Initial Notice Parties, (ii) the Debtors' thirty (30) largest general unsecured creditors (to the extent practicable), and (iii) all unions representing employees of the Debtors.
(10) A hearing on the Motion and the Debtors' request for entry of an Interim Order will be held on September 13, 2004 at 10:30 a.m.