Elliott/Travelport: booking problems
Firm’s decision to deploy legal indignation in this situation looks awkward
Elliott Management believes it has the skills and fundraising prowess to do it all: private equity, distressed debt and everything in between. In the pandemic, Elliott’s private equity group is relying on the firm’s other forte: aggressively deploying the law.
Struggling travel-booking platform Travelport, co-owned by Elliott and Siris Capital, has filed a lawsuit in New York state court asking a judge to bless its complex rescue financing. Travelport borrowed $500m from its owners in a loan secured against the company’s core intellectual property. Creditors worry such a deal represents an improper grab of collateral. If the two sides do not settle, a judge will have to rule on the legality of the arrangement.
Over the years Elliott has become a major investor in technology stocks. Eventually, it figured that if it could own 5 per cent of a software company and fix it, why not the whole thing. Travelport was acquired for $4.4bn in 2019.
The pandemic has hurt Travelport’s business, sparking the need for cash. Leveraged loan documents for Travelport make allowances for so-called “restricted payments” and investments in “unrestricted subsidiaries”. Based on Elliott and Siris’s interpretations, Travelport believed it was able to move just over $1bn worth of copyrights, trademarks and patents to entities not accessible to existing loan holders. Loan holders, including Blackstone, had been willing to extend new capital. But the sides could not agree on terms. The legal questions will focus on fiduciary duty, valuation and just how flexible covenants in loan agreements really are.
Elliot’s decision to deploy legal indignation in this situation looks awkward when compared with its position in previous situations. Years ago, Elliott and GSO made billions of dollars challenging the wheeling and dealing at private equity-owned Caesars Entertainment. Then again, some in the Travelport camp claim that when Blackstone owned Travelport a decade ago it trampled on creditors’ rights. These back stories will not matter to courts. But if it feels as if every firm is willing to push the line when it suits their purpose, they probably are.