Elliott Management’s Travelport Worldwide is nearing a restructuring settlement that would unwind a disputed $1bn shareholder rescue package and end a standoff with some of Wall Street’s biggest debt buyers, people familiar with the matter said.

The settlement, if completed, would cool tensions between Travelport’s top lenders and its private equity backers Elliott and Siris Capital Group, resolving one of the highest-profile fights to break out between investors in companies hit hard by the Covid-19 pandemic. Elliott declined to comment.

UK-based Travelport tried to weather the coronavirus with a financing package supplied by its owners, which had taken it private in 2018 and were eager to protect their stakes. One of Elliott’s biggest private equity bets, Travelport competes with Amadeus IT Group and Sabre to link airlines with booking websites and travel agents, a business that has slowed amid government-imposed travel restrictions and passengers’ fear of contagion.

To secure the rescue loan, the company shifted intellectual property assets out of the lenders’ grasp to serve as collateral for Elliott and Siris. Although Travelport got much-needed cash to help survive the pandemic, lenders including Blackstone, Bain Capital and Mudrick Capital Management were upset about losing access to valuable corporate assets.

These asset-shifting maneuvers have been increasingly popular among struggling private equity-backed companies since J.Crew Group pioneered the strategy in 2016. Taking advantage of flexible credit agreements, portfolio companies have moved brands, trademarks and other intellectual property out of the reach of lenders and used the assets to secure financial lifelines elsewhere and avoid bankruptcy.

The groundwork for these disputes was laid in recent years as debt buyers, hoping to squeeze out meager returns from picked-over debt markets, accepted fewer and fewer protections when investing. Credit investors sometimes have fought back, with varying degrees of success.

Lenders said Travelport had tripped a debt default by stripping away property that should have stayed available to satisfy their claims. When they threatened to take action against Travelport, the company sued them, arguing it had complied with its debt agreements and struck a prudent deal to get through the downturn in air travel.

Kirkland & Ellis, one of the most powerful law firms in finance, soon resigned from representing the company in a sign of how acrimonious the dispute had become. Travelport warned it could be forced into a defensive bankruptcy. It later reached an interim deal to keep lenders at bay and lay the groundwork for negotiations.

Under the possible new settlement, which could be signed as soon as Thursday, lenders agreed to backstop $500m in fresh loans, backed by the intellectual property that had been pledged to Elliott and Siris, people familiar with the matter said.

First-lien lenders are accepting a discount of 10 cents on the dollar on some of their debt claims, while second-lien lenders are taking a 25-cent discount, reducing Travelport’s roughly $3bn debt load, these people said. The rescue loan supplied by Elliott and Siris is being repaid, the people said.

Source: Wall Street Journal  

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