Northwest finds new way to restructure trust 2 aircraft notes

By Caroline Salls

Pittsburgh, May 7 - Northwest Airlines Corp. requested court approval of an amended proposal for the purchase of its trust 2 aircraft senior notes, according to a Friday filing with the U.S. Bankruptcy Court for the Southern District of New York.

According to the motion, Northwest's original trust 2 notes purchase motion called for class D noteholder Deephaven Capital Management, LLC to buy all of the NWA trust 2 senior notes, followed by a $176.66 million refinancing of the debt at reduced cost.

However, Northwest said class A noteholders stood in the way of the initial proposal by attempting to cause the redemption of the class D notes.

In response, Northwest found an alternative way to purchase the senior notes. The financing proposal from the initial motion will stand.

Under the trust indenture, the owner trustee can buy all of the outstanding trust 2 notes without paying a premium if the liquidity provider issues a notice of termination, which it intends to do.

In turn, the owner trustee will buy all of the outstanding notes using Northwest funds, and the trustee will then cancel the notes.

Northwest will then take title to its trust 2 aircraft and enter into new financings for all of the aircraft.

The company said Deephaven has agreed to accept a reduced fee in connection with the amended restructuring.

Northwest said a hearing on the initial motion was scheduled for April 12, but immediately before the hearing, U.S. Bank informed the company that the class D notes were being redeemed, and the hearing was postponed.

Both Northwest and Deephaven received distributions from the class D indenture trustee, supposedly on account of the class D notes redemption.

Northwest said it has requested an explanation from U.S. Bank for the distribution, and U.S. Bank has refused to answer and refused to appear for a deposition.

U.S. Bank told Northwest that the class A noteholders have agreed to indemnify it for the distribution and its refusal to provide an explanation.

According to Northwest's original motion, it currently leases the 13 trust 2 aircraft, and the interest rate on the notes is above market and results in above-market rent under the lease.

Deephaven holds all of the class D notes issued in the trust 2 transaction that are not held by Northwest, and it has the right to purchase all of the senior class A, class B and class C notes, the original motion said.

The terms of the $176.66 million refinancing were filed under seal.

A hearing on the amended proposal is scheduled for May 15.

Northwest, an Eagan, Minn.-based airline, filed for bankruptcy on Sept. 14, 2005. Its Chapter 11 case number is 05-17930.

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