Perseus scoops Frontier Airlines out of Chapter 11(2)

Private equity firm Perseus has agreed to supply $75 million (€48 million) in debtor-in-possession financing for bankrupt US airline Frontier Airlines.

The Washington-DC based firm has also extended a $100 million equity commitment to help steer Frontier through its Chapter 11 reorganisation plan.

Under a motion filed by Frontier and awaiting approval by a New York bankruptcy court, Perseus would own just less than 80 percent of the Denver-based airliner.

Battered by rising fuel prices, Frontier filed for bankruptcy in early April after an unexpected delay with its principal credit card processor precipitated major liquidity problems. In its bankruptcy filings, the company reported $98 million in assets and $92 million in debts. US bank Wells Fargo is by far Frontier’s largest unsecured creditor with more than $93 million in unsecured claims.

Frontier has continued to operate a full schedule of flights during the bankruptcy proceedings.

The DIP financing represents Perseus’ first foray into the commercial airline industry, which has been a source of deep frustration for private equity firms in recent months.

Hurt by many of the similar forces roiling Frontier, The Yucaipa Companies-owned Aloha Airlines and MatlinPatterson-backed ATA Airlines both filed for Chapter 11 earlier this year.

Headed by long-time private equity veteran Frank Pearl, Perseus is well known for its high-profile roster of investment professionals. Partners at the firm include former United Nations ambassador Richard Holbrooke, former Fannie Mae chairman James Johnson, and former Arthur Anderson managing partner John Schwieters. Pearl is a former partner with Wesray Capital, a seminal 1980s buyout firm.

Perseus is currently investing its sixth fund, closed on $600 million 2006. The firm typically targets middle market buyout and growth equity transactions in distressed investments, biotechnology and energy.