GMAC Asks Court To Convert Tower Air Bankruptcy To Chap. 7
Dow Jones Newswires
WASHINGTON -- GMAC Business Credit LLC, a unit of General Motors Corp. (GM), is seeking to have Tower Air Inc.'s (X.TOW) Chapter 11 bankruptcy
converted to a Chapter 7, liquidation.
GMAC is the Jamaica, N.Y., airline's largest creditor and also provides the company with debtor-in-possession financing. If its conversion request isn't granted, GMAC asks the court to grant it relief from the Bankruptcy Code's automatic stay provisions and permit GMAC to recover its inventory and accounts
Chapter 11 Trustee Charles A. Stanziale Jr. has been operating Tower Air and managing its affairs since May. The company hasn't flown a commercial flight since Sept. 17.
In October, the U.S. Department of Transportation suspended Tower Air's operating certificates. Tower Air has rejected its leases at New York's JFK International Airport and all of its spare parts and rotable inventory has been moved to an off-site warehouse.
Before Tower Air's bankruptcy filing, GMAC loaned the airline about $15 million. Shortly after the bankruptcy filing, the court granted interim authorization for GMAC to provide debtor-in-possession financing and approved a cash collateral stipulation.
As of Nov. 20, the outstanding balance on GMAC's loans was around $21.4 million.
Stanziale has requested that GMAC provide more than $1 million in additional financing for Tower Air to cover expenses from November through March.
However, GMAC says that the value of Tower Air's assets, and thus its collateral, continues to dwindle. Tower Air's most significant remaining assets are its
accounts receivable and its inventory.
GMAC also says there's no reasonable chance that Tower Air will be able to reorganize and emerge from bankruptcy.
However, in September more than $2.25 million in professional fee and expenses applications were filed, out of which a $1 million carve-out of GMAC's
collateral was paid.
Recently, numerous administrative expense claims have been filed. Tower creditor Ages Group, for instance, on Nov. 9 filed a $1.65 million administrative expenses claim for the post-bankruptcy use of aircraft engines.
"The debtor is no longer operating its business and has no cash available to meet its mounting administrative expenses," GMAC told the court in its recent request. "The debtor has no plan of reorganization and the debtor has not demonstrated, or even suggested that, if it did operate, it could generate sufficient
revenue to pay its future operating expenses, current administrative expenses, secured creditors, or its pre-petition creditors."
GMAC said Tower Air's remaining assets need to be sold and liquidated immediately to preserve the remaining value that is rapidly deteriorating.
A hearing on Tower's continued use of the DIP financing is scheduled for Dec. 4. GMAC is asking the court to consider converting the case to Chapter 7, or granting automatic stay relief, at that time.
Tower Air sought Chapter 11 protection from creditors on Feb. 29, citing assets of $380.7 million and debts of $356.9 million. The company formerly provided jumbo-jet service from New York to Athens, Fort Lauderdale, Fla., Los Angeles, Miami, Paris, San Francisco, San Juan, Puerto Rico, and Santo Domingo, Dominican Republic. It also flew between Tel Aviv and Paris."
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