Frontier Gets Another DIP Option

Last Updated Aug 5, 2008 9:44 AM EDT

When it rains, it pours. Looks like a mere few days after receiving an offer for DIP financing from Perseus, Frontier has another option. This time it's from existing unsecured creditors, and they've decided they like this deal better.

Credit Suisse, AQR Capital, and Republic Airways have all decided to pour up to $75 million into the airline ($30 million immediately) with, as the release says, "lower financing costs, less restrictive covenants and greater flexibility to pursue strategic opportunities without being constrained by more restrictive DIP provisions."

Man, if you had asked me two weeks ago whether or not I thought there was a chance Frontier would get DIP financing commitments from one group let alone two, I would have laughed. I'm quite impressed that they've pulled this off.

So why is this trio getting in on the act? Well, they're unsecured creditors, so there's a very tiny chance that they'll get any of the money that Frontier owes them once they exit bankruptcy. So, they figure that if they put money in, they'll have a chance of making some of their money back in the end. I don't know that I'd make that bet if I were them. I'd probably just walk away, but clearly they think they see something here.

Let's see what sort of changes this means for the airline. Republic was recently dismissed as a regional partner for the airline. Most of those jets are still sitting on the ground, I believe. So will they take to the air for Frontier again? I'd bet so. We saw this back in the last US Airways bankruptcy. Air Wisconsin was about to lose its deal with United so they put money into US Airways and became a US Airways carrier right then. Slightly different situation, but you get the idea.

We'll see if this bet pays off. I personally wouldn't make it, but it does give Frontier some serious breathing room that I never thought they'd have.