Iran War Could Have Cascading Impact on Airline Industry, says Milbank’s Jason Kestecher

By Gaurav Sharma

The ongoing Iran war could have a cascading impact on the airline industry if oil prices continue to rise in the event of a protracted conflict, which could potentially cause distress in the sector, says Jason Kestecher, a restructuring special counsel in Milbank.

“We’re seeing shipping get halted through the Strait of Hormuz. If this persists, then you could definitely expect to see that cascade onto the airlines,” said Kestecher, who has advised on many large, complex corporate restructurings and bankruptcies.

“A lot of airlines are tight on liquidity, and you need to manage that well. Fuel and energy expenses are not helpful for that,” said Kestecher.

The conflict has sent crude prices to their highest in 13.5 months as the arterial Strait of Hormuz remains closed, halting most energy shipments from the Persian Gulf.

The airline industry in the U.S. has come under stress from a combination of factors that range from the government shutdown last year to acute personnel shortages. Higher oil prices could further affect the sector. Octus previously analyzed some of the political and economic factors contributing to softness along international corridors occurring before the recent conflict in the Middle East.

Kestecher said that airlines have highly complex capital structures that make it difficult to execute out-of-court structurings or, really, any restructurings.

“You’ll have multiple financings secured by multiple separate pools of collateral, like airframes, which are typically leased. Revolving facilities are secured by engines and spare parts. You have bonds that are secured by intellectual property,” he said.

He added, “Out-of-court workouts are best implemented where you have a single lender or a small group of lenders that needs to consent, but once you have collateral that’s layered and multiple constituencies, all of which can block a deal, then your out-of-court flexibility really narrows dramatically.”

Kestecher sought to dispel the “misconception” about debt restructuring in the airline industry. “One misconception is that chapter 11 is inherently value-destructive. It definitely can be expensive, but very often it is the only way to preserve going-concern value or to implement an operational restructuring.”

“In many cases, bankruptcy is the only way to renegotiate fleet contracts, restructure real estate leases and modify labor agreements. Outside of bankruptcy, it’s often extremely difficult to do those things,” he added.

U.S. Bankruptcy Law 101

The legal team published another installment of U.S. Bankruptcy Law 101, an Octus series focused on discussing fundamental U.S. bankruptcy law topics and issues. This edition takes a closer look at the best-interest-of-creditors and feasibility requirements for chapter 11 plan confirmation. Read the U.S. Bankruptcy Law 101 series HERE.

Medical Solutions

Certain large lenders to Medical Solutions have been restricted since late last year to discuss its balance sheet, according to sources. Creditor dynamics in the privately held medical staffing company drew the spotlight last fall after lenders’ existing cooperation agreement expired in September. Thereafter a new, creative co-op loyalty agreement prepared by Gibson Dunn for the majority lender group baked in potential tiered treatment for a liability management exercise, Octus reported. Octus’ coverage of Medical Solutions is HERE.

CoreWeave

CoreWeave’s business model involves renting GPU capacity for AI model training, and the “sandbox” model disclosed to investors shows extremely attractive returns on GPU capital expenditures but, in our opinion, relies on aggressive assumptions about GPU residual value, run-rate profitability, contract pricing and taxes. Any failure by the company to meet these assumptions will lead to significant deterioration in the IRRs earned by the company. Octus’ coverage of CoreWeave is HERE.

BlockFills

BlockFills, a cryptocurrency liquidity and trading provider, hired Latham & Watkins and is exploring strategic alternatives, including a potential chapter 11 filing, amid financial challenges. The company suspended client deposits and withdrawals on Feb. 11 due to market conditions but continues to allow trading for certain purposes. Co-founder Nicholas Hammer resigned as CEO after the firm incurred a $75 million loss, and Joseph Perry stepped in as interim CEO. Octus’ coverage of BlockFills is HERE.

X

X, fka Twitter, reported $752 million in revenue for the third quarter of 2025, with adjusted EBITDA reaching $453 million, marking year-over-year growth in the teens on a percentage basis. The company had $2.2 billion in revenue for the nine months ended Sept. 30, 2025, ending the period with $1.25 billion in cash with total debt at $12 billion. X and xAI plan to repay approximately $17.5 billion of debt, with xAI having recently raised $20 billion in equity funding. This move aligns with owner Elon Musk’s strategy to consolidate his business interests before a planned IPO for SpaceX, which recently acquired xAI. Octus’ coverage of X is HERE.

Club Car

Club Car said that it expects volume growth in 2026 at a high-single-digit rate due to measures taken last year to reduce costs and counter trade tariffs. The golf cart manufacturer expects liquidity to begin to improve in the second quarter of 2026, bolstered by plans to monetize used inventory. The company projects markedly better EBITDA and liquidity by the end of 2026 compared with 2025, with fourth-quarter adjusted EBITDA expected by the market to increase by 9% year over year. Octus’ coverage of Club Car is HERE.

Wilsonart

Wilsonart’s $500 million unsecured bonds due 2032 traded up after the company released its fourth-quarter earnings that were “better than feared,” amid challenges in the building products sector. The company’s adjusted EBITDA declined by 4% year over year to $49 million, and revenue rose modestly to $313 million. The company appointed a new CFO, Brock Hancock, following the departure of Dave Rodgers. Octus’ coverage of Wilsonart is HERE.

Bally’s

During the fourth quarter of 2025, Bally’s reduced its total debt by $763 million. However, due to the sale of Bally’s International Interactive, we estimate that the net leverage specific to Bally’s credit box increased to just above 10x, when including the impact of the equity received in the transaction. Pro forma annual cash interest as at the end of September declined by approximately $13 million due to a higher cost of debt despite the aforementioned reduction in senior secured debt. Octus’ coverage of Bally’s is HERE.

Oldcastle

Oldcastle BuildingEnvelope is working with Paul Weiss as counsel and Evercore as financial advisor, and a group of creditors is working with Davis Polk. The building products supplier, which has $2.2 billion in debt outstanding, reported that adjusted EBITDA dropped 66% in the fourth quarter, compared with the previous year, alongside an 11.5% revenue decline. The company also disclosed that January EBITDA was down about 70% on a 5% sales decline as compared with a year earlier. This occurred as the company continues to struggle with high glass input costs, low capacity utilization and high fixed-cost absorption. Octus’ coverage of Oldcastle BuildingEnvelope is HERE.

Athletico

Athletico, a provider of orthopedic rehabilitation services, is engaged in balance sheet discussions with its lenders and is being advised by Kirkland & Ellis. Some lenders have signed nondisclosure agreements to facilitate negotiations amid performance concerns at the company. Athletico recently closed the sale of Pivot Onsite Innovations for $55 million to pay down its revolver borrowings, which are due February 2027. Octus’ coverage of Athletico is HERE.

Cumulus Media Inc.

Cumulus Media, an Atlanta-based “audio-first” media company, entered chapter 11 on March 4 in the U.S. Bankruptcy Court for the Southern District of Texas. The debtors filed a plan that would reduce funded debt by about $529 million, backed by a restructuring support agreement with an ad hoc group advised by Gibson Dunn that holds about 80% of funded debt due in 2029.

This is Cumulus’ second trip through chapter 11. The company exited bankruptcy in 2018 but entered an “industry in decline,” debtors’ counsel said at a first day hearing on March 5. Judge Alfredo Perez granted the debtors interim cash collateral use and scheduled a plan confirmation hearing for April 15 at 2 p.m. ET. Octus’ coverage of Cumulus Media is HERE.

Serta Simmons Bedding

This week Judge Christopher Lopez conducted a trial on the contract breach claims asserted by lenders left out of Serta Simmons Bedding’s 2020 non-pro-rata uptier exchange. The excluded lenders allege they are owed more than $400 million in damages because the participating lenders breached the pro rata sharing provision in section 2.18 of the first lien credit agreement.

The excluded lenders are again arguing that the uptier violated their rights after the U.S. Court of Appeals for the Fifth Circuit reversed former judge David Jones’ March 2023 summary judgment ruling in favor of the participating lenders, which rejected the excluded lenders’ contract breach claims and found that the “open market exchange” exception to pro rata treatment applies. The participating lenders deny that the uptier violated the pro rata sharing provision and argue that Apollo and other lenders should have mitigated their damages by selling their first lien holdings after the uptier. Octus’ Serta Simmons Bedding coverage is HERE.

First Brands Group LLC

On Feb. 27 the First Brands debtors announced that the key case parties reached an agreement that would “bring closure” to the bankruptcy and are “close” to a framework for the sale of four business units. Judge Christopher Lopez granted the debtors’ request to extend mediation through March 13.

On March 2, former First Brands CFO Stephen Graham admitted he misled lenders and pleaded guilty to four counts, including bank fraud, wire fraud and conspiracy to commit those crimes. Graham committed to testifying against company founder Patrick James and his brother Edward James at their criminal trial in July. Octus’ First Brands Group coverage is HERE.

Bankruptcy Industry Update

On March 2, Rhode Island Chief Bankruptcy Court Judge John A. Dorsey issued an opinion in In re Venus Capital Management Co. recognizing two Mauritius liquidation proceedings as “foreign main proceedings” under chapter 15 of the Bankruptcy Code. This marks the first time a U.S. court has considered the “intricacies of Mauritius insolvency law,” according to the ruling, making the foreign representative’s request for chapter 15 recognition “a matter of first impression.” Read the analysis HERE.

Ligado FCC Application

Viasat withdrew its opposition of Ligado’s Skyterra Next application with the Federal Communications Commission after a Third Circuit decision requiring Viasat to support Ligado’s application as part of a bankruptcy court-approved settlement agreement. However, Iridium filled the void left by Viasat and formally urged the FCC to deny Ligado’s application. Iridium’s FCC petition, which heavily referenced the court filings in the Ligado-Viasat dispute, argued that Ligado’s proposed system “has not been properly coordinated” and called on the FCC to investigate the Ligado-Inmarsat dispute. Octus’ coverage of Ligado is HERE.

Tariff Refunds & New Tariff Litigation

On March 6, a U.S. Customs and Border Protection official informed the U.S. Court of International Trade that the agency is preparing a new automatic process for refunding the president’s voided tariffs imposed under the International Emergency Economic Powers Act or IEEPA. The official says CBP is making “all possible efforts” for this automatic refund system to be ready in 45 days. Additionally, the official disclosed that as of March 4 the government had collected approximately $166 billion in IEEPA duties and deposits. Separately, 24 Democratic states filed a challenge to the president’s 10% global tariff under section 122 of the Trade Act, which replaced the voided IEEPA tariffs. Octus’ coverage of Tariff Policy & Impact is HERE.