Frontier Airlines secured a $75 million loan today from a private equity firm with deep experience in airline restructurings in a deal that puts the new investors in control of the company upon its emergence from bankruptcy.
Perseus LLC, a Washington private equity fund with an office in Evergreen, agreed to loan the money in two installments, in return for a controlling future equity stake of up to 80 percent. The arrangement, subject to bankruptcy-court approval, gives the airline needed working capital during its restructuring in Chapter 11, Frontier said.
Under the agreement, Perseus can convert its debt to equity when Frontier emerges from bankruptcy and purchase an additional $25 million stake to give it 80 percent of Frontier’s equity.
The deal represents a major step for Frontier, which has sought financial backing during one of the most difficult times for both the airline and lending industries. Oil hit record highs this month, and Frontier has been swamped by rising fuel costs. Meanwhile, financiers have been reluctant to back new deals, particularly in the struggling airline business.
“Today’s announcement is a major boost to Frontier and builds momentum toward its emergence from bankruptcy as a viable enterprise. The $75 million commitment in DIP financing from Perseus is a significant vote of confidence in the employees of Frontier, our product and business plan,” said Sean Menke, Frontier president and chief executive.
“Despite the current challenges facing the airline industry, these transactions help point the way towards Frontier’s emergence from bankruptcy as a competitive, sustainable airline.”
Perseus officials said they believe in Frontier’s business model, which focuses on service and affordability from the Denver International Airport hub.
“We believe that Frontier has the highest-quality, affordable coach product in the domestic airline industry. We are impressed by Frontier’s excellent employees and friendly customer service, as well as the numerous product characteristics that distinguish Frontier from its competitors,” said Brian Leitch, senior managing director of Perseus.
“Industry data supports our conclusion that when given a choice, the majority of coach travelers prefer Frontier over the competitive options.
“The airline industry is in a state of transition and some degree of turmoil. Although Frontier has been buffeted by recent fuel-price increases and certain other issues, we believe that Frontier has proven that it deserves a chance to succeed in this challenging market, and we are proud to help it do so,” he said.
Leitch added: “We have named our acquisition affiliate Go Flip Go LLC as a symbol of our desire to encourage and preserve Frontier’s unique cultural attributes. Of course, we also want to support Larry, Hector, Grizwald, Jack, Sally, the penguins and all the other Frontier animals.”
Frontier spokesman Steve Snyder said the airline is working with its business partners to secure additional financing.
Those partners probably include Airbus, aircraft-leasing companies, DIA and certain vendors.
“This gives us the degree of staying power we need. It’s a vote of confidence, both in the business plan and the company as a whole,” Snyder said.
Greg Griffin: 303-954-1241 or ggriffin@denverpost.com
