Associated Press- Northwest Airlines overcame a major obstacle on its path to exiting bankruptcy Wednesday when a judge approved a settlement with a shareholder group that had opposed the carrier’s reorganization.
Judge Allan Gropper approved the $5 million settlement at the start of a Northwest hearing to seek acceptance of its restructuring plan. The hearing continued.
Northwest and an ad hoc committee of equity holders, led by the Owl Creek hedge fund, agreed on Monday that the shareholder group would drop its opposition to the restructuring plan if Northwest would pay up to $5 million in fees and expenses incurred by the group.
The U.S. Trustee, the federal government’s representative in bankruptcy cases, objected, arguing that the shareholder group should not be paid because it had not made a substantial contribution to aid the company’s emergence from bankruptcy.
The committee had been agitating for some return on its investment.
The two hedge funds that remain in the group, Owl Creek Asset Management and Marathon Asset Management, together owned about 23 percent of Northwest’s current shares as of last month.
In bankruptcy cases, shareholders typically get nothing. The shareholder group’s main accusation was that Northwest has been underestimating its value as a reorganized company. Northwest expects to be worth roughly $7 billion when it emerges, plus another $750 million when it sells new shares.Northwest expects to emerge from bankruptcy in June.
