Air Baltic Corporation AS - Chapter 11 DIP Terms

DIP Terms

Borrower / Guarantors

• Air Baltic Corporation AS, the Latvian flag carrier, as borrower, together with any subsidiary or "orphan" owner trust that acquires aircraft collateral on or after the interim closing date and satisfies the agent's know-your-customer requirements
• Air Baltic Training, SIA and Baltijas Kravu Centrs SIA, as guarantors on a joint and several, senior secured superpriority basis, along with any other debtor subsidiary that is not a borrower

Agent / Arranger / Lenders

• GLAS USA LLC, as administrative agent, and GLAS Americas LLC, as collateral agent
• Strategic Value Partners, LLC, as DIP arranger; funds and accounts affiliated with SVP hold €220 million of the commitments, or 62.86%
• Barclays Bank Ireland PLC, as fronting lender, which initially provides and funds the full €350 million of commitments before assigning them to the commitment parties; Barclays separately holds a €50 million commitment as a DIP lender
• Hayfin entities (€40 million) and Oaktree Capital Management, L.P. global private debt funds and accounts (€40 million) round out the syndicate
• Airline competitors of the borrower identified in writing, and their affiliates, are disqualified from taking assignments or participations

DIP Commitments

• €350 million senior secured superpriority priming term loan facility, all new money with no roll-up, comprised of:
  • €175 million tranche 1, of which €140 million is available on an interim basis and the remainder upon entry of the final order
  • €125 million tranche 2, available upon entry of the final order and satisfaction of the tranche 2 milestones
  • €50 million tranche 3, available upon entry of the final order and satisfaction of the tranche 3 milestones
• The interim order authorizes borrowings of up to €140 million in principal, plus interest, fees, indemnities and other amounts.
• The tranche 2 and tranche 3 commitments each reduce dollar-for-dollar by the principal amount of any financing provided by a non-DIP lender on terms satisfactory to the majority DIP lenders.
• Until the debtors can deliver priming liens over all collateral listed on schedule 3(b) of the term sheet, tranche 2 and tranche 3 remain unavailable; the final-order portion of tranche 1 becomes available on entry of the final order provided all non-priming conditions are satisfied.
• Amounts repaid or prepaid may not be reborrowed. Commitments are several, not joint.

Interest Rate

• Term SOFR (twelve-month tenor) + 8.00%, on a 360-day year
• Interest accrues over one-month periods and defaults to PIK by capitalization into principal; the borrower may elect cash payment on five business days' written notice ahead of an interest payment date.
• Default Rate Increase: 3.00%

Fees

• Commitment Payment: 5.00% of the maximum €350 million commitments, fully earned on the interim closing date, PIK by capitalization, with interest accruing on the full amount from the date the initial tranche 1 loans fund
• Upfront Payment: 5.00% of the maximum €350 million commitments, earned on execution of the commitment letter, PIK by capitalization, with interest accruing on the full amount from the date the initial tranche 1 loans fund
• Exit Premium: 5.00% of the maximum €350 million commitments, payable in cash on any redemption, repayment, acceleration or prepayment upon exit
• Agent Fee: set forth in a separate agency fee letter between the DIP agent and the borrower dated on or about the interim closing date
• Extension Fee: 0.75% of then-unfunded commitments and outstanding loans, payable to extend the initial maturity date
• Assignment Fee: $3,500 per assignment, other than assignments to a lender affiliate or approved fund or by the fronting lender under the fronting arrangements
• Make-Whole Amount: subject to entry of the final order, on any redemption, prepayment, acceleration or repayment prior to exit, the fees and interest that would have been payable through the initial maturity date calculated on the full €350 million of original commitments as if fully drawn on the milestone deadlines, regardless of whether the loans were actually drawn
• Expenses of the agent, arranger, fronting lender and lenders are payable monthly on summary invoice, including the costs of an aviation asset servicer and technical advisor, with legal fees limited to Seward & Kissel LLP, Vedder Price P.C., Dentons US LLP and one local counsel per jurisdiction; individual lenders' legal fees incurred before entry of the interim order are capped at $100,000, with the cap inapplicable to those specified advisors and to fees incurred during a continuing event of default. The interim order sets a 10-calendar-day review period for professional invoices, with undisputed amounts payable within five business days of its expiry.
• The interim order approves the DIP fees as fully earned, non-refundable and non-avoidable, and finds that none constitutes unmatured interest under section 502(b)(2), a penalty or unenforceable liquidated damages.

Maturity

• The earliest to occur of:
  • The earlier of nine months after the petition date and 250 days after the initial tranche 1 loans fund, extendable by three months on two business days' notice against payment of the 0.75% extension fee
  • Substantial consummation of a confirmed plan of reorganization
  • Conversion of any debtor's case to Chapter 7
  • Acceleration of the loans and termination of the commitments on an event of default
• There is no amortization. Optional prepayments are permitted without premium or penalty other than the fees and Make-Whole Amount described above.
• Mandatory prepayment is required from 100% of net cash proceeds of asset sales and total losses of DIP collateral other than junior lien collateral (excluding ordinary-course sales, but never for aircraft collateral or an aircraft simulator, and excluding proceeds reinvested within 30 days), 100% of extraordinary receipts including tax refunds, indemnity payments and insurance proceeds (subject to a 20-day reinvestment exception), and 100% of net proceeds of unpermitted debt; on a sale of all or substantially all assets under section 363, all obligations are repaid in full and the commitments terminate after the Carve-Out is funded.
• Proceeds are applied to agent fees and expenses, then lender expenses, then lender premiums and fees, then accrued interest, then principal, then all other lender amounts, with any balance to the debtors.

Carve-Out

• Post-Trigger-Notice Carve-Out Fee Cap: €6 million for professional fees incurred after delivery of a Carve-Out trigger notice; fees incurred before delivery are covered without regard to whether they appear in the approved budget
• Chapter 7 Trustee Fee Cap: $75,000
• Clerk and U.S. Trustee fees under 28 U.S.C. § 1930(a) and 31 U.S.C. § 3717
• Allowed professional fees exclude restructuring, sale, consummation, success or similar fees of any professional, with a carve-out from that exclusion for Seabury Securities LLC, whose restructuring, sale, consummation, success and financing fees are included to the extent its engagement letter and fee are approved by the court.
• A trigger notice may be delivered only upon a continuing event of default and acceleration, and goes to the debtors, Milbank LLP as lead restructuring counsel, the U.S. Trustee and committee counsel.
• On delivery, the notice operates as a demand to sweep all cash on hand into a fee reserve account and, to the extent cash is insufficient, as a deemed pro rata draw request notwithstanding any default or commitment termination; the agent may not sweep or foreclose on cash until the account is fully funded, funds in the account are not DIP collateral or cash collateral and are not subject to the DIP liens, and the agent holds a reversionary interest in any residue. Payments from the account permanently reduce the Carve-Out dollar-for-dollar.
• The Carve-Out is senior to the DIP liens and the DIP superpriority claims.

Use of Proceeds

• Repay approximately €71,665,825, plus accrued interest, fees and make-whole amounts and the EDC simulator debt, owing to Export Development Canada and Axiom Baltic Services Ltd. under finance leases secured by aircraft, spare engines and a simulator
• Post-petition working capital and general corporate purposes
• Current interest and fees under the facility
• Bankruptcy-related costs and expenses, professional fees as allowed by the court, and allowed administrative costs
• Adequate protection payments
• No proceeds may fund investigation or prosecution of claims against the lenders, arranger or agent, or their affiliates, or loans, advances, dividends or investments to any person other than the debtors.
• The interim order authorizes the borrower to pay off the EDC/Axiom obligations in full, take transfer of the finance lease collateral from the special-purpose entities that hold it, and grant first priority liens on that collateral, all deemed to occur simultaneously on the closing date. Entry of the interim order constitutes final approval of that payoff, which is not subject to stay, avoidance, recharacterization, setoff or other challenge.
• The loan parties may advance funds, including loan proceeds, among themselves and with affiliates in accordance with the approved budget; intercompany obligations owed by any debtor are collaterally assigned to the agent until the obligations are paid in full.

Securities and Priorities

• Superpriority administrative expense claims under section 364(c)(1) against each debtor on a joint and several basis, senior to all administrative expenses including section 507(b) claims and to any adequate protection obligations, subject only to the Carve-Out and, pending entry of the priming order, permitted liens; the claims are pari passu among lenders, have recourse to all property other than avoidance actions and their proceeds, and no equal or senior superpriority claim may be granted in the cases
• The term sheet provides for liens at three levels, subject to the Carve-Out:
  • First priority perfected liens under section 364(c)(2) on unencumbered property, including all cash and bank accounts and, subject to the final order, avoidance action proceeds and the post-default right to bring and control avoidance actions
  • Second priority perfected liens under section 364(c)(3) on the junior lien collateral listed on schedule 2, junior only to liens existing at the petition date
  • Priming first priority liens under section 364(d)(1) on all remaining property, including the aircraft collateral once the pre-existing finance leases are repaid and, subject to the final order, Chapter 5 avoidance actions; priming liens do not reach assets securing the prepetition bonds until the court enters a priming order or the bondholders approve by extraordinary resolution, a proviso that does not apply to the aircraft collateral
• Under the interim order, collateral is limited to the initial tranche 1 DIP collateral: the eight Airbus A220-300 aircraft (MSNs 55003 through 55016) and seven PW1521G-3 spare engines together with technical records, warranty rights and insurances, the assets on schedule 2, unencumbered property, and proceeds of the foregoing. The liens over the aircraft and other finance lease collateral are conditioned on the concurrent payoff in full of the EDC/Axiom obligations.
• After entry of the final order and on a tranche 2 borrowing, collateral expands to all assets of the debtors: a first lien on the initial tranche 1 collateral, avoidance action proceeds subject to the final order, a first lien on assets securing the prepetition bonds subject to the priming order, a second lien on the junior lien collateral, and a first lien on all other property. Schedule 3(b) identifies the A220-300 spare parts pool, airBaltic trademarks and other intellectual property, an Airbus A220 full-flight simulator, hangars and real property including the MRO Konkors facility, training center and pilot academy, trade receivables, inventory, and the bond service reserve account balance and other 2029 bond collateral.
• No liens are granted over property where liens cannot be provided under the Cape Town Convention and Protocol, though the liens attach to proceeds of that property; the DIP collateral otherwise excludes leasehold interests in aircraft, engine and simulator leases and equipment financing arrangements where a non-debtor counterparty's consent is required and not obtained and Cape Town precludes the lien, again with proceeds captured.
• The interim order perfects the liens automatically without further filing and preserves credit card processors' rights under the customer programs arrangements, excluding processor holdbacks from the DIP liens until paid over to the debtors.
• Perfection covenants require, for the specified aircraft collateral, a New York law mortgage, Cape Town registrations and UCC filings, deregistration and export powers of attorney and insurance certificates promptly on funding, with Latvian commercial pledges, commercial registry and aviation authority filings and airframe and engine warranty agreements within 30 days; for the CAE Airbus A220-300 series 7000XR full flight simulator, MSN 121164, a Latvian commercial pledge with registry filings within five business days; for the junior lien collateral, a Latvian mortgage with filings within five business days.
• The obligations are not discharged by confirmation of a plan under section 1141(d) unless paid in full on or before the effective date, and the order's terms survive confirmation, conversion, dismissal or withdrawal of the reference.

Prepetition Bonds

• Approximately €380 million principal amount of 14.5% secured bonds due 2029 remain outstanding under a May 14, 2024 trust deed, as supplemented Oct. 24, 2024 and Aug. 24, 2026, with U.S. Bank Trustees Limited as trustee and security trustee and Air Baltic Training, SIA as pledgor.

Adequate Protection

Prepetition Bondholders

• Adequate Protection Payments: subject to entry of the priming order and to the debtors maintaining unrestricted cash of at least €10 million after the tranche 1 funding and €20 million after the tranche 2 funding, cash payment of all postpetition interest on the bonds at the non-default rate under the trust deed, plus out-of-pocket postpetition fees and expenses of one primary and one local counsel to the prepetition trustee
• Adequate Protection Liens: subject to entry of the priming order, perfected junior liens on unencumbered property and on the schedule 3(a) property once the pre-existing finance leases are repaid, subordinate to the Carve-Out and the DIP liens
• The adequate protection liens are junior and silent relative to the DIP liens, and the DIP lenders control the right to credit bid collateral subject to those liens.

Credit Bid

• The agent, at the direction of the majority DIP lenders and directly or through one or more acquisition vehicles, has the unqualified right under section 363(k) to credit bid all or any portion of the outstanding obligations in any sale of a loan party's assets, whether under section 363 or section 1129, by a Chapter 7 trustee under section 725, or otherwise.
• The right to credit bid may be assigned, sold or otherwise disposed of to any acquisition entity or joint venture formed in connection with the bid.

Avoidance Actions

• Chapter 5 avoidance actions are excluded from the collateral and from the superpriority claims' recourse under the interim order; the debtors will seek liens on avoidance action proceeds, and the post-default right to bring and control those actions, at the final hearing.

Budget and Financial Covenants

• The initial 13-week forecast attached to the interim order runs from the week of Sept. 7, 2026 through the week of Dec. 7, 2026 and opens with €12.1 million of cash, dropping to €4.6 million before the €140 million interim draw; the forecast shows a €3.4 million bond service reserve account balance held back throughout, leaving €1.1 million of unrestricted cash in the week before funding.
• The forecast reflects €78.9 million of finance lease debt repayment in the week of the interim draw, Sept. 14, 2026, and €38.2 million of other operating expenses the following week; a €35 million draw in the week of Oct. 19, 2026; and a €125 million draw in the week of Nov. 23, 2026, against which €15.7 million of adequate protection is scheduled in that same week.
• After the interim draw the forecast troughs at €13.5 million of unrestricted cash in the week of Nov. 16, 2026, the week before the tranche 2 draw, against the €10 million minimum liquidity covenant that applies until tranche 2 funds.
• The initial 13-week budget was due to the agent and arranger no later than two days before the petition date as a condition to the interim closing, and the debtors must deliver a rolling 13-week updated budget every Friday by 5:00 p.m. New York time beginning the second full week after the petition date; an updated budget becomes the approved budget only if reasonably acceptable to the majority DIP lenders in their sole discretion. Amendments to the budget or a variance report require prior written approval, which may be given by email from Vedder Price P.C. on the lenders' behalf.
• Variance reports covering cash disbursements and receipts for the preceding four weeks and on a cumulative basis are due every fourth Friday by 5:00 p.m. New York time.
• Minimum Liquidity: unrestricted cash of €10 million after the tranche 1 funding and €20 million after the tranche 2 funding, at all times until maturity, tested at each calendar month end against the variance report delivered the following week
• Minimum LTM Plan EBITDAR: beginning with the first full fiscal quarter after delivery and acceptance of the business plan, EBITDAR may not fall more than 25% below the business plan projection, excluding professional fees, revaluation gains and losses from FX, ETS price, interest rate and fuel movements, asset sale gains and losses, and restructuring or one-off charges
• Negative covenants cap other liens, other indebtedness and non-permitted asset dispositions at €10 million each, and limit ordinary-course payments and distributions to airBaltic Switzerland GmbH and Aviation Crew Resources, AS to €250,000. No disposition of initial tranche 1 collateral is permitted without majority DIP lender consent.
• Expenditures, restricted payments, investments and loans must otherwise follow the approved budget as varied; prepetition debt may not be paid except as the term sheet, the DIP orders or another order acceptable to the majority DIP lenders provides or as adequate protection; and no organizational document may be amended, waived or modified without majority DIP lender consent.
• Once a creditors' committee is appointed, the debtors must deliver each approved budget to its lead counsel and financial advisors as soon as reasonably practicable after approval.

Permitted Variance

• Tested as of each variance testing date on a cumulative basis over the four-week testing period ending the preceding Sunday:
  • Total cash receipts may not fall below 85.0% of budgeted receipts
  • Total cash disbursements, excluding legal, financial and other professional advisor fees, may not exceed 115.0% of budgeted disbursements

Milestones

• Tranche 1: the petition date was to occur by Sept. 14, 2026, and the interim order to be entered within five days of the petition date, approving the transfer of the aircraft collateral to a borrower, the first priority liens (second priority as to junior lien collateral) and the payoff of the existing aircraft indebtedness. Both were met; the debtors filed Sept. 14 and the court entered the interim order Sept. 16.
• Tranche 2, measured from the petition date:
  • Assumption of the Lufthansa wet leasing agreements within 30 days, with Lufthansa holding a consultation right over any extension of this milestone
  • Filing of an aircraft lease rejection motion consistent with fleet right-sizing within 59 days
  • Delivery of a business plan incorporating a performance improvement plan and supporting the tranche 1 and tranche 2 loan levels within 60 days
  • Execution of non-disclosure agreements and delivery of initial commercial terms to at least two potential equity providers within 80 days
  • Within 100 days: binding term sheets with aircraft lessors covering fleet right-sizing and revised lease terms for 75% of the fleet; binding term sheets with Pratt & Whitney, Airbus and Lufthansa; delivery of the performance improvement plan; and the filing of a plan and disclosure statement providing for repayment of the obligations in full on the effective date
  • Within 120 days: a disclosure statement approval motion; a binding equity commitment term sheet from the Government of Latvia or strategic investors or plan sponsors; a commitment from the Government of Latvia to support the plan; and binding committed exit financing
  • Reasonable confirmation that the collateral is respected and enforceable in the applicable jurisdictions
• The equity and exit commitments must together exceed the amount needed to meet the business plan and to repay the obligations in full, be free of contingencies to the extent of the obligations, be pledged to the agent with the DIP parties as express third-party beneficiaries holding the exclusive right to sue for breach and to the resulting damages as collateral, be non-assignable other than to the original financiers, and be approved under the final order so the DIP parties can enforce them and effect payoff on five business days' notice to the debtors. Any portion from the Government of Latvia or another European governmental entity must comply with the EU rescue and restructuring air regime and other EU regulations.
• Tranche 3: definitive fleet right-sizing documentation within 140 days, and disclosure statement approval within 160 days.
• General: confirmation order within 210 days, and an effective date by the earlier of nine months after the petition date and 250 days after the interim closing date.
• Compliance is determined by the majority DIP lenders and the arranger in their sole reasonable determination, and they may extend any or all milestones by notice without further court order; the interim order requires any extension to be docketed within one business day.

Events of Default

• Entry of a final order approving the facility in form or substance unacceptable to the majority DIP lenders, or any request by a debtor to reverse, modify, stay, reconsider or vacate a DIP order, or a filing seeking to modify the term sheet or disallow the obligations, or any provision of the term sheet or a DIP order ceasing to be valid and binding
• Failure to comply with the term sheet, including the financial covenants, subject to a one business day grace period for updated budgets and variance reports
• Failure of any milestone by its deadline
• Any lien over the aircraft collateral, including the simulator, ceasing to be valid, binding, perfected and enforceable or its priority being impaired; the same as to a material portion of other collateral where the impairment is material; or an uninsured total loss of aircraft collateral, or insurance proceeds not distributed as required
• Failure of a representation or warranty to be true in all material respects when made
• Any application for, or entry of an order approving, a section 507(b) claim or a lien pari passu with or senior to the obligations or the DIP liens, other than the Carve-Out and liens under the DIP orders
• Any debtor commencing or supporting an action against the agent or a lender to subordinate or avoid the liens, other than subordination of the DIP liens on junior lien collateral
• Filing, without majority DIP lender consent, of a motion to sell all or substantially all of the collateral under section 363 that does not provide for payment in full in cash at closing, or filing of a plan or disclosure statement unacceptable to the majority DIP lenders that does not repay the obligations in full in cash on the effective date
• Appointment of a trustee, receiver, examiner or responsible officer with enlarged powers beyond sections 1106(a)(3) and (a)(4)
• Relief from the automatic stay granted to any other creditor as to collateral with an aggregate value in excess of €10 million
• Termination of the interim or final order other than by repayment, conversion of any case to Chapter 7, dismissal of any case, termination of exclusivity, or commencement of insolvency, liquidation or enforcement proceedings not contemplated by the term sheet

Remedies

• Five business days after an event of default beyond any grace period, the agent at the direction of the majority DIP lenders may accelerate, terminate the commitments, set off amounts in controlled accounts, compel the debtors to file a sale motion under section 363(b) with the collateral agent entitled to credit bid to the exclusion of all others until repayment, or exercise any other remedy under the documents or applicable law.
• Under the interim order, the automatic stay is modified to permit immediate delivery of a default notice, termination or reduction of commitments, and a declaration that the obligations are due and payable, with that declaration effective only after a five-business-day remedies notice period running from delivery of notice to the debtors and their lead restructuring counsel.
• During the remedies notice period the debtors may not request further draws other than to fund the fee reserve account, and the debtors, any committee, the U.S. Trustee or any party in interest may seek an emergency remedies hearing on whether a default has occurred and on appropriate relief including non-consensual use of cash collateral; the DIP parties are deemed to consent to that hearing.
• After the notice period expires the stay terminates automatically and the DIP parties may revoke the debtors' right to use cash collateral or loan proceeds other than for the Carve-Out, foreclose and freeze cash in the debtors' accounts, set off, dispose of collateral and apply proceeds, and exercise remedies under the New York UCC and the Cape Town Convention and Protocol, absent a contrary court order. Notwithstanding those remedies, the DIP parties may not compel a section 363(b) sale absent court approval.

Waivers

• Section 506(c): nothing in the interim order constitutes consent by the DIP parties to any surcharge, lien, assessment or claim against the collateral under sections 506(c) or 105(a).
• Subject to entry of the final order, the agent and lenders are not subject to marshaling or any similar doctrine, and no DIP lien is subject to any lien avoided and preserved for the estate under section 551.
• To the extent applicable, waiver of sovereign immunity is a condition to closing if the Government of Latvia participates in the facility or other aspects of the restructuring.

Key Dates

• Petition date: Sept. 14, 2026
• Interim hearing: Sept. 15, 2026; interim order entered Sept. 16, 2026
• Final hearing: Oct. 9, 2026 at 10:00 a.m.
• The final order entry date must occur within 35 days of the petition date as a condition to the final-order portion of tranche 1. If the final order is also the priming order authorizing non-consensual priming of the bond collateral, the debtors and DIP parties must file the proposed form at least 14 days before the final hearing; otherwise at least seven days before, with objections due at least three days before in either case. The form of DIP credit agreement is due at least seven days before the final hearing.