SAS names winning exit financing consortium
SAS has selected Castlelake, Air France-KLM and Lind Invest, together with the Danish state, as the winning bidder consortium in its exit financing solicitation process.
The agreed transaction structure involves a US$1.175bn (SEK 12.925bn) total investment in the reorganised SAS comprising: US$475 million (SEK 5.225bn) in new unlisted equity and US$700 million (SEK 7.7bn) in secured convertible debt, as well as a US$500 million (SEK 5.5bn) refinancing by Castlelake of SAS’ current debtor-in-possession (DIP) term loan.
The shareholder structure post-reorganisation – based on total equity, but pre-conversion of the convertible debt – will show that Castlelake holds approximately 32.0% of the equity and 55.1% of the convertible debt; the Danish State holds approximately 25.8% of the equity and 29.9% of the convertible debt; Air France-KLM holds approximately 19.9% of the equity and 5.0% of the convertible debt; Lind Invest holds approximately 8.6% of the equity and 10.0% of the convertible debt; and the remaining approximately 13.6% of the equity is most likely to be distributed among and held by certain creditors who may receive recovery in equity.
The convertible debt is expected to be secured and have a maturity of seven years and an interest of SOFR + 650bps per year, and may be converted into common shares based upon certain terms and valuation metrics. The convertible debt is further expected to be subject to an upfront fee corresponding to 1.5% of the committed amount.
As part of the transaction, SAS is intended to eventually join the SkyTeam Alliance, of which Air France-KLM is a founding member, and exit the Star Alliance, subject to any relevant approvals and emergence from the chapter 11 process.
The final documentation for the agreed transaction structure still needs to be finalised and it will also need to be approved as part of SAS’ chapter 11 plan of reorganisation by the US Bankruptcy Court, creditors, various regulatory authorities and the completion of a Swedish company reorganization. No approval is expected to be required from the existing shareholders of SAS AB for the transaction.
SAS states that it will continue to operate and serve its customers as usual throughout the implementation of the transaction, which is likely to entail a filing by parent company SAS AB for a company reorganization in Sweden in 2024. As a result of that process, all of SAS AB’s common shares and listed commercial hybrid bonds are expected to be cancelled, redeemed and delisted (currently expected to occur during the second quarter of 2024). Consequently, no value is expected for existing shareholders in SAS AB and the company warns that only a “modest recovery” is expected for the holders of commercial hybrid bonds.
SAS currently aims to receive approval from the US Court of the Chapter 11 Plan in early 2024, to be followed by obtaining regulatory approvals and the implementation of a Swedish Reorganization at the SAS AB level during 2024.
In parallel to the transaction, and further to its joining of SkyTeam, SAS will seek to establish a commercial cooperation with Air France-KLM and its airlines “to the benefit of Scandinavian customers through increased connectivity”.
Carsten Dilling, Chairman of the Board of SAS, said that this announcement was a “significant achievement” of its SAS FORWARD transformation plan. “We have carried out a broad, competitive and thoroughly evaluated equity solicitation process, and we are confident that the selected bid is the most favourable for SAS, its creditors and other stakeholders,” he says. “Securing new capital is one of the key pillars in the SAS FORWARD plan and will provide a strong financial foundation to help drive our airline forward and facilitate our emergence from the U.S. chapter 11 process.”
Anko van der Werff, President & Chief Executive Officer of SAS, agreed, stating that the deals shows that “our new investors believe in SAS and our potential to remain at the forefront of the airline industry for years to come”. He further commented that the move towards a partnership with SkyTeam “determines a clear path forward for the company” and that by being part of SkyTeam, the airline can “further enhance SAS’ offerings for the benefit of our colleagues, customers and communities”.
Benjamin Smith, CEO of Air France-KLM, marked this as an important day for SAS and for Air France-KLM. “We are pleased to be part of the winning bidding consortium selected by the board of SAS,” he said. “Air France-KLM looks forward to establishing strong commercial ties with SAS. With its well-established position in Scandinavia and strong brand, SAS offers tremendous potential to Air France-KLM. This cooperation will allow Air France-KLM to enhance its position in the Nordics and improve connectivity for Scandinavian and European travellers. We look forward to being a part of this new chapter in SAS’ history and thank the board of SAS for their trust.”
Weil, Gotshal & Manges is global legal counsel and Mannheimer Swartling Advokatbyrå is Swedish legal counsel to SAS. Seabury Securities and Skandinaviska Enskilda Banken are serving as investment bankers, and Seabury Securities is also serving as restructuring advisor to SAS. Skadden, Arps, Slate, Meagher & Flom is serving as legal counsel, Rothschild & Co is serving as investment banker, and SkyWorks is serving as aviation consultants to Castlelake. White & Case is serving as legal counsel to Air France-KLM. Bech-Bruun is serving as legal counsel to Lind Invest.