Nasty f ight about to take wing?

party transactions that are oppressive and unfairly prejudicial to the legitimate interests of the holders of its unsecureddebentures,tothe benefit of Clairvest, its majority shareholder and senior secured lender.”

Clairvest is also providing the debtor-in-possession financing to Discovery Air during the CCAA proceedings and has submitted stalking horse bids for all the remaining assets held by the company.

Those transactions include credit and loan agreements with Clairvest, Discovery being taken private by Clairvest, by Clairvest exercising preferential options to acquire majority ownership of Top Aces and then last December by bringinginaJPMorganledsyndicate as another investor.

The net effect is that through those transactions, value was given up by DiscoveryAir,valuethatwould otherwise be available to pay the debt holders. (In its March 21 factum, Discovery Air said, “it does not have the funds to make these payments and Clairvest has said it will not fund them.”)

The question is how much valuedidDiscoveryAirgive up?

The calculation starts from the $195.3 million value impliedwhenJPMorganmade a $50-million investment to acquire a 25.6 per cent stake in Top Aces. After adjusting for the $25 million of treasury shares issued, and the $41.2 million debt for treasury shares swap with Clairvest, the enterprise value when Discovery Air had full ownership of Top Aces before last December’s transactions is reduced to $129.1 million. With Discovery Air now only holding 9.7 per cent of Top Aces, it gave up a 90.3 per cent stake (valued at $116.6 million), but did not enjoy the equivalent value in return. Instead it received only $43.4 million in proceeds of disposition ($18.4 million from Clairvest and $25 million from JP Morgan) — a difference of $73.2 million.

When all the calculations are done, the ad hoc creditor’s committee concludes that “by structuring the transaction as Clairvest did, the net result was the inequitable transfer of approximately $64 million of Top Aces value to Clairvest.” Value that is more than sufficient to redeem the $34.5 million of debentures held by the third-party minority investors, along with any accrued and unpaid interest. What does Clairvest say? We were advised to look at the CCAA proceedings and it didn’t respond to questions about Campbell’s affidavit.