Monday, July 14, 2008
First Data has typically retained a percentage of Frontier's credit card sales receipts until Frontier customers complete their flights, a risk mitigation technique commonly called a holdback. But First Data notified Frontier earlier this year that it intended, as of May 2008, to increase the holdback from 45 to 100 percent.
On April 10, to prevent what it called a "material alteration of our contract rights, and to develop and implement a comprehensive restructuring plan under the protections of Chapter 11," Frontier and its subsidiaries filed petitions for reorganization under Chapter 11 of the United States Bankruptcy Code.
Denver-based Frontier has maintained normal business operations since the filing; it has used the time and legal protection afforded by the petition to secure additional financing and sustain liquidity.
"Today's announcement is another important step as we navigate the Chapter 11 process," said Frontier President and Chief Executive Officer Sean Menke. "The terms of the agreement are fair and reasonable to both parties, and we appreciate First Data's ongoing cooperation."
Frontier will get an infusion of funds from the agreement, according to court documents filed July 9, 2008. The airline is waiting for approval for the amended agreement from Chief Judge Stuart M. Bernstein, who is presiding over the case in the U.S. Bankruptcy Court, Southern District of New York.
Under the new agreement, First Data will no longer hold a percentage of Frontier's Visa and MasterCard receipts in reserve and will forward 100% of said receipts as consumers pay for upcoming flights. According to Frontier, the effect will be an "immediate incremental liquidity."
In exchange for suspending its holdback practice for Frontier, First Data will have a lien on certain Frontier ground service equipment.
"We are pleased to have come to an agreement with Frontier and will continue to work closely with them through this process," said Ed Labry, President, First Data USA. According to court papers, Frontier received 70 percent of its total revenues for fiscal year 2007 from Visa and MasterCard credit card receipts.
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