California-based AeroCentury Corp. ($ACY) and two affiliates (together, the “debtors”) filed chapter 11 bankruptcy cases on Monday March 29, 2021 in the District of Delaware. The debtors are in the business of investing in mid-life regional turboprop and jet aircraft equipment and then turning around and leasing that equipment to foreign and domestic regional air carriers. Their portfolio consists of thirteen aircraft, six of which are held under operating leases, two under financing leases, and five held for sale in whole or as parts. If this general type of business sounds familiar, well, congratulations, you’ve been paying attention: over the last few weeks, we’ve been highlighting the challenges that aircraft finance businesses have faced due to COVID-19 primarily in the context of Nordic Aviation (here, here, here and here).

COVID-19 did no favors for the debtors either. The debtors experienced an 85% decrease in YOY revenue in Q320; they had generated $43.6mm in revenue in FY19. That hurts when thrown against ~$83mm of pre-petition first lien debt due in 2023 (exclusive of debt held on certain non-debtor special purpose entities backing individual aircraft).

Of course, there were problems pre-pandemic. In fact, the debtors have been in a perpetual state of forbearance with their agent bank, MUFG Union Bank NA ($MUFG), and their lenders since October 28, 2019. Not that you could tell from the looks of this chart:

Anywho, pre-COVID, the debtors’ banker, B. Riley Securities Inc. ($RILY), was out to market on a dual track, soliciting bids for a sale of the debtors’ assets on one hand, while also pursuing a capital raise on the other. The bankruptcy will apparently take the first path.

The debtors march into bankruptcy court with a stalking horse agreement in place with Drake Asset Management Jersey Limited, which purchased all of the debt held by the debtors’ lenders in October 2020. Drake will credit bid $83.5mm; it did not negotiate a break-up fee or expense reimbursement so anyone bullish on an airline turnaround is apparently more than welcome to enter the fray with little to no impediments (well, other than than credit bid amount). Given that RILY has been marketing the debtors for what seems like an eternity now, the debtors hope to push the sale process expeditiously, completing the process in approximately 50 days.

Date: March 29, 2021

Jurisdiction: D. of Delaware (Judge Dorsey)

Capital Structure: $83mm of funded debt

Company Professionals:

• Legal: Morrison & Foerster LLP (Lorenzo Marinuzzi, Erica Richards) & Young Conaway Stargatt & Taylor LLP (Joseph Barry, Ryan Bartley, Joseph Mulvihill, S. Alexander Faris)

• Investment Banker: B. Riley Securities Inc. (Adam Rosen)

• Claims Agent: KCC (Click here for free docket access)

Other Parties in Interest:

• RCF Agent: MUFG Union Bank NA