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Latam Airlines bondholders question fairness of DIP financing proposal
By Caroline Salls
Pittsburgh, July 14 – A group of Latam Airlines Group SA’s bondholders objected to the company’s proposed debtor-in-possession financing, according to a Monday filing with the U.S. Bankruptcy Court for the Southern District of New York.
“The ad hoc group supports the debtors’ efforts to reorganize Latam, Latin America’s largest airline, lawfully through the protection of Chapter 11 under the supervision of this court,” the objection said. “But such protections are not a free ride for the debtors.”
The bondholders said Latam chose to reorganize in the United States to take advantage of the unique benefits afforded by Chapter 11.
However, the group said Chapter 11 also imposes creditor protections on debtors that they “may not circumvent through a tranche C DIP facility that seeks to enrich the debtors’ insiders at the expense of unsecured creditors.”
The bondholders said Latam is looking to use the benefits of Chapter 11’s DIP financing provisions in a way that is illegal and constitutes a “sub rosa” plan of reorganization.
Specifically, the group said the company is seeking approval of financing to be provided by its largest shareholders, not to guarantee that the financing be repaid in full, but that the lender/shareholders have the exclusive option to forego payment and instead convert the debt into equity at a 32% discount under a yet-to-be filed plan of reorganization.
The bondholders said a consortium of creditors, including some members of the ad hoc group, have been trying to propose an alternate tranche C DIP facility, but the debtors have “sought to block its efforts at every turn.”
“The debtors cannot possibly show that the proposed financing satisfies the entire fairness standard,” the objection said.
Latam is a Santiago-based airline. The company filed bankruptcy on May 25 under Chapter 11 case number 20-11254.
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