South Africa based Comair is in a perilous situation after its business rescue practitioners failed to convince lenders to throw more money into the restructuring process of the aviation company, which operates Kulula and British Airways flights in SA.
The business rescue process of Comair is on the ropes as the R226-million requested by the rescue practitioners, Shaun Collyer and Richard Ferguson, on 2 July 2020 from commercial banks has failed to materialise.
In a letter to Comair creditors dated 22 July, which was obtained by Business Maverick, Collyer and Ferguson said they were informed by a consortium of banks and aircraft financiers on 21 July that they won’t extend further funding for the company. The reason for the refusal by banks and other financiers to back Comair’s rescue process is unclear.
The funding, which is known as post-commencement funding (PCF), is crucial as it would fund Comair’s operations until October while a business rescue plan was put in place. Without the funding, Collyer and Ferguson said, they will be forced to discontinue business rescue proceedings, which might bring Comair closer to liquidation, which involves selling its assets to pay R4.6-billion owed to creditors.
“In the absence of any PCF, and a capital raising process to underpin the financial and operational elements of a business rescue plan, we will have no other option but to conclude that there is no longer a reasonable prospect of rescuing the company,” said Collyer and Ferguson.
It would also scupper Comair’s plan to return to the skies in November 2020 after the government imposed travel restrictions since 27 March to slow the spread of Covid-19. The Comair board placed the company under business rescue on 5 May because it didn’t have enough working capital to pay expenses and debt obligations.
Defaulting insurance and aircraft maintenance payments
The failed attempt to raise R226-million from lenders has worsened Comair’s financial position, with the company defaulting on insurance payments for its assets, including the entire fleet of aircraft. The insurance payment was due on 30 June 2020, which covers premiums for April, May, and June.
After receiving a cancellation notice of its insurance cover from Marsh (an insurance broker), Collyer and Ferguson are now rushing to secure emergency funds from Comair lenders – with “limited success” – to pay outstanding monies by 28 July.
Comair has also failed to pay more than R30-million to service providers that maintain, care, and repair its fleet of aircraft. As a result of non-payment, the service providers have discontinued the maintenance of Comair’s aircraft in their possession until all amounts due are paid in full. The service providers have taken a drastic decision of denying Comair access to the aircraft and “are not permitting movement of the aircraft for repositioning purposes”.
Potential investors walk away
Comair’s chances of attracting potential investors that would recapitalise the struggling airline operator have been jeopardised after Redford Capital (a corporate finance advisory firm) withdrew its services from the business rescue proceedings.
Redford Capital was hired by Collyer and Ferguson to help them raise capital for Comair, engage potential investors and buyers of the company’s assets. In addition to being the Comair rescue practitioners, Collyer and Ferguson are directors of Redford Capital.
Collyer and Ferguson said before Redford Capital’s exit from Comair’s rescue proceedings, the firm recently received two unsigned offers from a group of investors to invest up to R1.5-billion in the company. This investment would be in the form of debt and equity, including a cash injection.
The two unsigned offers are likely to collapse due to Redford Capital’s exit, said Collyer and Ferguson.
“As Redford Capital was instrumental in progressing these non-binding expressions of interest… Comair will as a result be prejudiced by Redford Capital’s exit from the capital raising process.”
The hiring of Redford Capital for the Comair rescue proceedings has angered creditors for two reasons. The first is that Collyer and Ferguson have proposed for Redford Capital to be paid a monthly retainer fee of R250,000, excluding VAT. Collyer and Ferguson have also proposed a success fee to be paid to Redford Capital, which will be calculated at 1% (excluding VAT), of the gross funding it has raised for Comair during its business rescue proceedings.
Second, creditors have questioned the independence of Collyer and Ferguson as rescue practitioners because the pair have proposed a retainer and success fee for a company (Redford Capital) of which they are also directors. Collyer and Ferguson have left it to the Comair board to appoint another corporate finance advisory firm by 27 July.