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Northwest Airlines files reorganization plan

 
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PostPosted: Sat Jan 13, 2007 11:58 pm    Post subject: Northwest Airlines files reorganization plan Reply with quote

Sat Jan 13, 2007 6:46 AM IST
By Kyle Peterson
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CHICAGO (Reuters) - Northwest Airlines Corp. filed a plan to exit bankruptcy as an independent company on Friday, aiming to give fresh stock to some creditors and raise capital from investors, including private equity firms.

The plan, which will be fleshed out in a more detailed filing next month, moves the U.S. No. 5 airline a step closer to exiting bankruptcy and adds urgency to any rival airlines considering a bid for the company, as consolidation fever grips the sector.

The reorganization plan and the disclosure statement require court approval. Upon receipt, the airline will seek creditor approval of the plan. Northwest said it hopes to exit Chapter 11 between April and the end of June.

Northwest said it will issue stock in the restructured company to unsecured creditors in exchange for their claims and will cancel its current common and preferred stock. Holders of those shares will nothing.

Northwest has been in talks with bankrupt Delta Air Lines Inc. about a possible link-up after exiting Chapter 11, according to a source familiar with the talks. Delta itself is the target of a $10.5 billion bid by US Airways Group Inc.

"This could pave the way for a bold strategic move," said Joe Schwieterman, transportation expert at DePaul University. "Northwest wants to get its house in order first, before moving to a mega-consolidation. This could lay the groundwork for its hopes for reaching out for a merger partner."

Northwest filed its plan in a federal New York bankruptcy court ahead of its Jan. 16 deadline to do so without interference from outside parties.

Judge Allan Gropper also granted a request by Northwest, which had the consent of its creditor committee, for an extension until Feb. 15 to file a disclosure statement, which would give details of the restructuring plan.

"They can't do anything with the plan without the disclosure statement," said Thomas Salerno, chairman of the financial reorganization practice at the Squire, Sanders & Dempsey law firm.

He said the filing of the reorganization plan signals that the company is entering the final stages of its bankruptcy but that potential investors will have a clearer outlook on the company when Northwest files its disclosure statement.

PAYING CLAIMS

Northwest, based in Eagan, Minnesota, entered bankruptcy protection in September 2005 after losing $4.2 billion in the previous four years.

"Over the past 16 months, we have achieved the three key objectives we set for our restructuring," Northwest Chief Executive Doug Steenland said in a statement.

"We have removed $2.4 billion in annual costs from the business; we have restructured our fleet and entered into new aircraft purchase agreements; and we have significantly strengthened our balance sheet," he said. "We remain on track to report a pretax profit for the full year 2006."

Gropper has yet to rule on a request by a group of Northwest shareholders, who hold about 18.6 percent of the airline's outstanding common stock, to appoint an official committee of equity holders to represent their interests after the U.S. Trustee denied their request on Dec. 26. A hearing on that matter is set for Feb. 14.

Shares of Northwest tumbled 83 cents, or 15 percent, to $4.71 in over-the-counter trading.

Northwest's plan gives it the option to raise money by selling equity in the restructured company and possibly raise capital from private equity firms. The company also plans to convert its existing bankruptcy financing into new forms of debt.

The new debt would include a $175 million revolving credit facility and a $1.05 billion loan, including a $75 million letter of credit, each with a maturity date of August 2013, the airline said.

Northwest has not commented publicly on its likely role in any industry consolidation, but it has hired investment bank Evercore Group LLC to help evaluate its strategy.

(Additional reporting by Paritosh Bansal and John Crawley)
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