Northwest Airlines Corporation (OTC:NWACQ) shareholders suffered yet another setback today after the United States Trustee rejected Owl Creek's requests for an equity committee to represent common stock shareholders in bankruptcy court. This comes after Northwest shares have risen from around $0.55 in mid-2006 to a high of $4.88 on speculation of a possible buyout or deal that would result in common stock retaining their value.

The hedge fund first petitioned the U.S. Trustee back in November of 2006, arguing that such a committee could be justified because:

• the Debtors' cases are large and complex;
• the Northwest stock is widely held and actively traded;
• the interests of Northwest's shareholders are not otherwise adequately represented;
• the Debtors do not, under reasonable (non-strategic) valuations, appear to be "hopelessly" insolvent;
• Owl Creek's request is appropriately timed based on the status of the Debtors' cases; and
• the necessary costs do not significantly outweigh the concerns for adequate representation.

The U.S. Trustee responded to the requests in a letter today, saying:

"In considering your request, as noted above, the United States Trustee sought, and received, input from counsel to the Debtors and counsel to the Committee regarding the solvency of the Debtors and the propriety of the appointment of an equity committee in these cases. Courts in this district have held that the appointment of an equity committee should be the rare exception, and should not be appointed unless equity holders establish that (i) strict application of the absolute priority rule, and (ii) they are unable to represent their interest in the bankruptcy case without an official committee. Accordingly, after careful consideration and ana1ys of your request, the United States Trustee declines to appoint an equity committee at this time." (Read More)

Owl Creek acknowledged this in their Schedule 13D/A filing today, which noted:

"The Reporting Persons sent a letter on November 21, 2006 to the Acting United States Trustee ("UST") requesting the appointment of an official committee of
equity security holders to represent shareholder interests in the Issuer's bankruptcy case ("Northwest Equity Committee"). A copy of that letter was attached to the Reporting Persons original 13D. On December 8, 2006 the Reporting Persons sent a second letter to the UST further requesting appointment of the Northwest Equity Committee. A copy of that letter was attached to the Reporting Persons' Amended 13D. By letter dated December 21, 2006, the UST advised the Reporting Persons that she declined to appoint the Northwest Equity Committee. A copy of that letter is attached as Exhibit 4. The Reporting Persons have become a member of an unofficial Northwest Equity Committee with other entities that own shares of Common Stock for the purpose of requesting that the court overseeing the Issuer's bankruptcy case appoint a Northwest Equity Committee as an official committee in such case. The unofficial Northwest Equity Committee has retained legal and financial advisors to assist in such request and the Reporting Person expects that this request will be made in the near future. The Investment Manager intends to work to protect shareholders' economic interests and is interested in serving on an official Northwest Equity Committee, if recognized by the bankruptcy court." (Read More)

While this is certainly a setback for shareholders, the unofficial committee will likely continue to work to gain representation in court. If they are successful, it could mean significant gains for shareholders if they are able to orchestrate a way to debt-holders to be paid off with cash left over (per Owl Creek's plan). This makes Northwest Airlines a stock worth watching closely over the next few months.

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