Can probably count on the fingers of one hand, the number of airlines in the Western World, that haven't created a creditors committee involving their banks, lessors and major creditors, many meeting daily (virtual). Ditto for lessors.
I'm having a hard time picturing why a given airline would want all its different creditors all on one committee, but I don't know how that kind of stuff works in general. Who would chair the committee (CFO?) and what is its goals?
A creditors committee (different names used), is used to communicate (no surprises), and keep all creditors on the same page.
For example, there can't be many airlines that haven't breached financial covenants by now, with loans technically becoming repayable on demand. Ditto for leases. Breaching an especially onerous financial covenant with bank A, usually triggers a breach of other banks covenants relating defaults with other institutions.
So the purpose of the committee is not to manage the client, as that gets participants into potentially dangerous territory, of behaving like directors or senior management, but to manage what they can manage. So covenants will be reset or suspended, to avoid causing more widespread breaches.
For example, Bank A with USD500m exposure, will undertake to communicate and inform Banks B to F, who all have lower exposures. And so on. Major creditors will do the same for smaller creditors. They won't all be participating in person or via Zoom.
Apart from communication customer to creditors, it's also to ensure communication creditor to creditor. The last thing Bank A wants, is for Bank B with USD10m exposure to take unilateral action. Sometimes you just can't influence smaller participants, who would rather have 20c in the dollar next week, and write of the balance, than possibly 40c in the dollar next year, with a lot of oversight meantime.
Creditors with large exposures, take the opportunity to educate, inform and assess the smaller ones, and in some cases when that fails, increase their own exposure to pay off the mavericks, rarely dollar for dollar. The magnitude of this downturn restricts the ability of major creditors to assist.
Also sub-groups in the committee, verifying data, modelling, and reviewing legal implications for the different interest groups. Usually amazing constructive collaboration and camaraderie occurs, which is why some banks re-construct teams from years or decades earlier, and use profiling to select the right people. Participants want to protect their employers / clients interests AND company continue.
Usually chaired by the CFO, though some companies create a new senior management position for the chairmanship role.
Many countries, under emergency powers, are working on statutory management provisions similar to those in NZ (which are themselves being updated). Not the same as Chapter 11. Some Governments are presumably asked creditors not to act pending revised powers and processes being articulated, while others are hoping they wake up tomorrow and.....................
Last edited by smartplane
on Sun Apr 26, 2020 11:29 pm, edited 1 time in total.