Aeromexico: Committee objects to plan, questions voting results

By Sarah Lizee

Olympia, Wash., Jan. 19 – Grupo Aeromexico, SAB de CV’s Chapter 11 plan drew an objection from the official committee of unsecured creditors, according to a Tuesday filing with the U.S. Bankruptcy Court for the Southern District of New York.

“Although the committee has worked in good faith to support the debtors and has tried to resolve its objections, the committee continues to oppose the plan due to several significant infirmities – most notably, the improper and inequitable distribution of value to insiders – that impermissibly depress the recoveries of certain general unsecured creditors,” the committee said in its objection.

The committee claims the debtors “abdicated their fiduciary duties” and allowed a group of creditors to negotiate directly with the debtors’ insider prepetition shareholders.

“At no point, either before or during those negotiations, did the debtors make clear what should be obvious: if shareholders want to maintain equity interests under the plan, they must contribute market value,” the committee said.

“As a result, the creditors that ultimately negotiated the plan and the insider shareholders stand to enjoy enormous recoveries, while the general unsecured creditors that were excluded from the negotiations will foot the entire bill.”

The committee said that while the plan voting report reflects that all classes of unsecured creditors, other than Aerovias Empresa de Cargo, SA de CV, voted in favor of the plan, the results should be “closely scrutinized.”

The group said most of the actual votes in favor of the plan came from creditors that were already obligated to vote in favor, either because they were invited to the negotiating table and are receiving special benefits or were obligated to vote in favor of a so-called “complying plan” before they had a chance to see the actual plan, or the approved disclosure statement.

The committee also claims the debtors targeted key creditors with calls pressuring them to vote in favor of the plan due to longstanding relationships and hopes of doing future business.

The group also claims the debtors were able to use a “procedural loophole” to value unliquidated claims at $1 for voting purposes, even though the debtors know that the class of general unsecured creditors at debtor Aerolitoral, SA de CV (Aeromexico Connect) would have voted to reject the plan if the debtors counted votes using their own low-end estimates of the value of allowed claims at Aeromexico Connect.

The committee said the few remaining general unsecured creditors that actually voted on the plan were “faced with a Hobson’s choice when presented with a ballot: vote ‘yes’ to support the debtors’ restructuring, which results in an unfairly low recovery for them, or vote ‘no’ and possibly endure the parade of horribles the debtors allege would result if the plan were rejected—including a plan with even lower recoveries for them than the one on file.”

“Most troubling is that, prior to the Jan. 7 voting deadline, most creditors had not had the opportunity to fully understand the damning record that the committee uncovered through discovery and that will be on display at the confirmation hearing,” the committee said.

The plan confirmation hearing is scheduled for Jan. 27.

Grupo Aeromexico, a holding company for commercial aviation, is based in Mexico City. The company filed Chapter 11 on June 30, 2020 in the U.S. Bankruptcy Court for the Southern District of New York under case number 20-11563.

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