MIAMI – LATAM Airlines Group (LA) has come to an agreement with key stakeholders to restructure its debt and emerge from bankruptcy under new management.
According to court documents procured by batimes.com.ar, Latin America’s largest airline aims to raise US$5bn by offering shares and convertible notes to current stockholders and creditors as it emerges from Chapter 11 bankruptcy.
The agreement authorizes a consortium of creditors led by Sixth Street Partners, Sculptor Capital, and SVPGlobal to seize control of the company.
The deal will also allow LA, located in Santiago, to reduce its debt load by roughly US$4bn after the process is completed, which could happen as soon as mid-2022 provided a judge and shareholders accept it.
The agreement is a triumph for LA, which filed for bankruptcy in 2020 as a result of the COVID-19 lockdowns, which halted international travel. The business faced losing control of its bankruptcy exit strategy if it did not present a restructuring plan by Friday.
Competitor Azul Brazilian Airlines (AD) has stated that if given the opportunity, it would buy LATAM. The David Neeleman airline did in fact make a bid to buy LATAM’s operations. The latter considered AD’s proposal, but Alvo said it lacked specificity. “It was a proposal that was hypothetical and impossible to bring forward,” he said, without providing details to the Argentinian news outlet. “We considered its merits. [They’re] insufficient.”
Additionally, because LA filed its plan within a court-imposed deadline, Azul and other creditors’ ability to float their own plans is severely limited under US bankruptcy regulations. Until that authority is removed, LA has the sole right to submit a reorganization proposal.
A Clear Exit out of Bankruptcy
Delta Air Lines (DL), Qatar Airways (QR), and Chile’s Cueto family – who held the majority of the company prior to the reorganization – have all agreed to endorse the new deal, which will help to resolve difficult Chilean legal issues that have lingered over the talks.
Creditors and shareholders “joined forces in providing over US$5bn of fresh capital for LATAM to support the restructuring and bring it forward,” Roberto Alvo, chief executive officer of LATAM, said in an interview. The plan and agreement “provide the basis for a very strong and solid future of Latam.”
The initiative is a significant step forward for Latam in its efforts to emerge from bankruptcy. Creditors who aren’t thrilled with the plan can still try to stop it, but under US bankruptcy law, a firm can force a restructuring deal on unwilling creditors provided certain legal requirements are met.
According to Alvo, the airline intends to raise US$800m in common stock and begin trading in Santiago with American depositary receipts, or ADRs, issued in New York. Existing shareholders will have first go at buying the new equity, which is unusual in a US bankruptcy, where stockholders are often wiped out entirely.
Stockholders in Chile, on the other hand, have rights to new shares offered by their company under Chilean regulations.
LATAM used Chapter 11 to reduce its fleet, renegotiate aircraft leases, and save money in other areas, including reducing its workforce from 43,000 to roughly 29,000 people.
Domestic travel in key markets like Brazil, Colombia, and Chile has recovered, but it won’t approach pre-pandemic levels of demand until 2024, according to Alvo.
Due to the fallout of the pandemic, LA will phoenix its way back into a reconfigured Latin American travel market under new management.
As some of the region’s leading carriers were forced into bankruptcy, including Colombia’s Avianca Holdings (AV) and Grupo Aeromexico (AM), LA’s position in all of the countries it operates in is, as Alvo puts it, “equal or better than the one we had prior to entering the pandemic.”
Featured image: LATAM CC-BHA Airbus A320-271N. Photo: Otto Kirshof/Airways