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Travelport has entered a standstill agreement with its creditors, according to people familiar with the matter, as the parties haggle over a drop in the company’s value since the start of the pandemic.

The travel technology company, which is co-owned by activist investor Elliott Management, has a deal to hold off lenders for a couple of months in a $1.15 billion dispute over alleged debt defaults. Creditors will refrain from making payment demands that could risk tipping the U.K.-based company into bankruptcy.

On the one side of the billion-dollar fight are the lenders, including GSO Capital Partners, Canyon Partners, and Mudrick Capital Management.

On the other is Travelport — which provides ticketing and other services for travel agencies, airlines, and other companies and its shareholders, Evergreen Capital (an arm of Elliott) and private equity firm Siris Capital Group.

The existence of the agreement — previously unreported — should be reassuring news to Travelport employees and partners. It signals that Travelport will operate business as usual for the next couple of months. Creditors and management will haggle, with Travelport hoping lenders knock down the value of a broader array of outstanding loans worth about $2 billion to a smaller total amount, sources said.

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At a big-picture level, Travelport is working with what could approximately be considered two different buckets, worth about $500 million each. The first bucket of money comes from the company’s existing access to liquidity and cash. The company has drawn at least $220 million from that bucket.

At risk is a second bucket of money that’s also $500 million.

“Trap Door”

Some backstory, first: Maine-based payments tech firm Wex backed out in May from a planned $1.7 billion deal to buy Travelport’s shares in eNett and Optal, payment solutions providers.

The day after Wex said it wanted to drop the acquisition, Travelport’s private equity sponsors interpreted the terms of its credit documents to say it had the right to transfer Travelport’s intellectual property assets worth about $1.15 billion to a subsidiary beyond the reach of its secured creditors.

Travelport’s owners moved the assets to a new subsidiary, which they used as collateral to raise $500 million in new loans.

That additional liquidity could help keep the company out of bankruptcy and focused on its reorganization, slimming down, and tech modernization strategy. But the company may not need it if its 2020 revenue levels continue to follow the rebound they’ve seen, sources familiar with the company speculated.

Some lenders call the move a “trap door” in the contract and allege that Travelport’s financial sponsors aren’t allowed to effectively remove Travelport’s intellectual property as loan collateral, sources said. Lenders have threatened to allege a breach of contract and other violations in lawsuits, sources said. Bloomberg News first reported in May that Travelport’s lenders had threatened to claim default.

The so-called trap door move isn’t common and is considered by financial experts to be an assertive move. But it does have similar precedents in recent disputes between creditors and companies like J. Crew and Neiman Marcus.

A UK court has set a September trial date to decide if Wex can get out of buying eNett and Optal.

Travelport can continue to pursue its modernization strategy and service customers even if it loses that battle, sources familiar with the company said.

Photo Credit: A man wears a protective mask as he walks on Wall Street during the coronavirus outbreak in New York City, New York, U.S., March 13, 2020. Travelport is in a standstill agreement with its Wall Street creditors, holding off lenders until September in a $1.15 billion dispute over alleged debt defaults. Lucas Jackson / Reuters