Southern Air's second amended joint plan of reorganization confirmed

By Jim Witters

Wilmington, Del., March 14 - Southern Air Holdings, Inc.'s second amended joint plan of reorganization was confirmed March 14 during a hearing in the U.S. Bankruptcy Court for the District of Delaware.

Daniel J. McHugh, Southern Air chief executive officer, said, "We are very pleased to receive court approval of our plan of reorganization and hope to exit Chapter 11 in just a matter of weeks. This was a critical part of our overall transformation. We have used this process to dramatically change and improve our capital structure, substantially reduce our debt and other legacy costs, strengthen our balance sheet, and enhance our competitiveness with new financial flexibility."

The company will emerge from bankruptcy "as a well-capitalized carrier delivering safe, high quality air cargo services," he said.

"As part of our strategic transformation, we have realigned our operations and capabilities and transitioned to a modern, fuel-efficient fleet of 777s and 747-400s serving global customers. Our operations and corporate activities are now in Northern Kentucky (the Cincinnati airport) near our largest hub of activity where we are even better able to satisfy the needs of our customers and grow our business for the long term to benefit our business partners and employees for years to come," McHugh said.

Last-minute change

Judge Christopher S. Sontchi said he would sign the confirmation order after the debtors' attorneys remove a provision for exculpation for Southern Air's lenders and the Oak Hill entities.

Jane Leamy, representing the U.S. trustee for Region 3, successfully argued that exculpation should apply only to estate fiduciaries.

Southern Air attorney Brian S. Rosen told the court the third parties were entitled to exculpation because they contributed significantly to the recovery for general unsecured creditors.

But Sontchi agreed with Leamy, and Rosen said he would strike the third-party provision from the order and submit it to the court under certification of counsel.

Plan details

The confirmed plan calls for the creation of a limited liability corporation named Cargo 360, LLC, the membership interests of which will be held by Cargo 360 or Reorganized Cargo 360.

On the plan effective date, all of the capital stock in Southern Air and Air Mobility will be contributed to Cargo LLC.

Also on the effective date, Cargo LLC will enter into a senior secured exit facility consisting of the $20 million exit revolving credit facility and the exit term loans.

The exit term loans consist of $62.5 million to pay the debtor-in-possession lender claims and $17.5 million to pay prepetition lender claims. The term loans carry an interest rate of Libor plus 700 basis points or base rate plus 600 bps and mature in five years.

The commitment fees for the exit facility total $300,000.

On the plan effective date, the company will issue 10 million shares of common stock of the reorganized Southern Air parent.

Rosen said that the debtors plan to make an equity payment to the DIP facility lender equal to 5% of the common stock of the reorganized company.

Plan consummation cannot be completed until approval is obtained from the U.S. Department of Transportation, Rosen said.

Treatment of creditors

Treatment of creditors under the confirmed amended plan includes:

• Holders of allowed administrative claims and allowed priority non-tax claims will be paid in full in cash;

• Holders of allowed priority tax claims will be paid in full in cash on the plan effective date in quarterly installments over a five-year period or under terms agreed to by the claimant, the debtors and the requisite lenders;

• Holders of other allowed secured claims will receive payment in full in cash of the proceeds of the sale of the collateral assets, the property securing the claim or other distributions under the bankruptcy code or agreed upon by the parties;

• Holders of allowed general unsecured claims may receive a share of $2.5 million the debtors will pay into a litigation trust and a share of any of the litigation trust's interests;

• Holders of allowed claims of $2,000 or more may elect to be treated as convenience claims. Holders of convenience claims will receive cash equal to 25% of the allowed claim;

• Holders of allowed general liability insured litigation claims will be allowed to proceed with the liquidation of the claim;

• Holders of allowed subordinated claims will receive no distribution;

• Preferred equity interests and holdings equity interests will be extinguished on the plan effective date;

• Cargo 360 equity interests, Southern Air equity interests and Air Mobility equity interests will be deemed in full force and effect;

• 21110 LLC, 21111 LLC, 21221 LLC, 21550 LLC, 21576 LLC, 21590 LLC, 21787 LLC, 21832 LLC, 23138 LLC, 46914 LLC, 24067 LLC, CF6-50 LLC, Aircraft 21380 LLC and Aircraft 21255 LLC equity interests will be extinguished, and the assets of 21110 will be distributed to reorganized Southern Air; and

• Intercompany claims will be reinstated to the extent determined appropriate by the debtors or be adjusted, continued or capitalized.

Southern Air, a Norwalk, Conn.-based cargo carrier, filed for bankruptcy on Sept. 28, 2012. Its Chapter 11 case number is 12-12690.

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