SAS announces $1.18 billion restructuring deal with consortium

By Sarah Lizee

Olympia, Wash., Oct. 4 – SAS AB announced that it has reached a major milestone in its ongoing Chapter 11 process and has selected Castlelake, LP, on behalf of certain funds or affiliates, Air France-KLM SA and Lind Invest ApS, together with the Danish state, as the winning bidder consortium in its exit financing solicitation process.

The agreed transaction structure includes a total investment in the reorganized SAS corresponding to $1.18 billion, including $475 million in new unlisted equity and $700 million in secured convertible debt, as well as a $500 million refinancing by Castlelake of SAS’ current debtor-in-possession term loan.

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 details and final documentation for the agreed transaction structure remain to be finalized between the investors and SAS. The transaction will also need to be approved as part of SAS’ Chapter 11 plan of reorganization.

SAS said 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 SAS AB (the listed parent company for the SAS group) 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 canceled, 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 only a modest recovery is expected for the holders of commercial hybrid bonds.

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, subject to customary approvals.

The transaction will result in a shareholder structure post-reorganization (based on total equity, but pre-conversion of the convertible debt) where:

• Castlelake holds about 32% of the equity and 55.1% of the convertible debt;

• The Danish State holds about 25.8% of the equity and 29.9% of the convertible debt;

• Air France-KLM holds about 19.9% of the equity and 5% of the convertible debt;

• Lind Invest holds about 8.6% of the equity and 10% of the convertible debt; and

• The remaining roughly 13.6% of the equity is most likely to be distributed among and held by 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 plus 650 basis points 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, payable to the investors by the reorganized SAS.

SAS said the investors’ winning bid, which is through a U.S. court-approved equity raise process, is affirmatively supported by the official committee of unsecured creditors and indicates that $325 million is expected to be allocated to general unsecured creditors in cash and equity.

Based on initial estimates, which remain subject to material change, this indicates a recovery for the majority of the general unsecured creditors of about 5% to 20% of the nominal value of the claims. However, the recoveries will vary further depending upon which entities the claims are asserted against, if the claims have any guarantee claims, and which entities the guarantee claims are to be asserted against.

Negotiations with stakeholders will continue until emergence from the Chapter 11 process, SAS said.

SAS reiterated that it expects that there will be no recovery for subordinated unsecured creditors and no value for SAS AB’s existing shareholders.

SAS currently aims to receive approval from the U.S. 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.

SAS is Scandinavia’s leading airline, with main hubs in Copenhagen, Oslo and Stockholm. The company filed bankruptcy on July 5, 2022 under Chapter 11 case number 22-10925.

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