Latam Airlines files Chapter 11 bankruptcy with shareholder support

By Caroline Salls

Pittsburgh, May 26 – Latam Airlines Group SA and its affiliates in Chile, Peru, Colombia, Ecuador and the United States filed Chapter 11 bankruptcy on Monday in the U.S. Bankruptcy Court for the Southern District of New York with the support of the Cueto and Amaro families and Qatar Airways, two of Latam’s largest shareholders, according to a news release.

In light of the effects of Covid-19 on the worldwide aviation industry, the company said the reorganization process provides it with an opportunity to work with the group’s creditors and other stakeholders to reduce its debt, access new sources of financing and continue operating, while enabling the group to transform its business to this new reality.

Latam and its affiliates will continue flying as conditions permit throughout the process, the release said.

“Latam entered the Covid-19 pandemic as a healthy and profitable airline group, yet exceptional circumstances have led to a collapse in global demand and has not only brought aviation to a virtual standstill, but it has also changed the industry for the foreseeable future,” chief executive officer Roberto Alvo said in the release.

“We have implemented a series of difficult measures to mitigate the impact of this unprecedented industry disruption, but ultimately this path represents the best option to lay the right foundation for the future of our airline group. We are looking ahead to a post-Covid-19 future and are focused on transforming our group to adapt to a new and evolving way of flying.”

Financing

The group has secured the financial support of shareholders, including the Cueto and Amaro families, and Qatar Airways to provide up to $900 million in debtor-in-possession financing.

To the extent permitted by law, the group said it would welcome other shareholders interested in participating in this process to provide additional financing.

Other terms of the DIP financing had not been filed as of Tuesday afternoon.

In addition, as of Monday, the group had about $1.3 billion in cash on hand.

Latam said it and its affiliates are also in discussions with their respective governments of Chile, Brazil, Colombia and Peru to assist in sourcing additional financing, protect jobs where possible and minimize disruption to its operations.

“Faced with the biggest crisis in the history of aviation, the board has approved this path forward having analyzed all the available alternatives to ensure the sustainability of the group, board chairman Ignacio Cueto said in the release.

“As we have adapted to new realities in the past, we are confident that Latam will be able to succeed in the post-Covid-19 context and continue to serve Latin America.”

The group said its employees will continue to be paid and receive benefits as provided in their employment agreements. Suppliers will be paid in a timely fashion for goods and services delivered from May 26 and throughout this process.

With Chapter 11 protection, the group said its management team will remain in place.

Debt details

According to court documents, Latam had $21,087,806,000 in total assets and $17,958,629,000 of total debt as of Dec. 31.

The company’s largest unsecured creditors are holders of Latam 2026 notes, with an $800 million unsecured notes claim; holders of Latam 2024 notes, with a $700 million unsecured notes claim; Banco Santander Chile of Santiago, with a $549 million frequent flyer miles claim; the holders of series E local bonds, with a $179.03 million unsecured bonds claim; Banco de Credito del Peru of Lima, with a $167 million frequent flyer miles claim; Banco Santander Madrid, with a $139.5 million unsecured debt claim; holders of series A local bonds, with an $89.52 million unsecured notes claim; holders of series B local bonds, with an $89.52 million unsecured notes claim; Scotiabank Chile of Santiago, with a $74 million unsecured debt claim; and holders of series C local bonds, with a $66.24 million unsecured notes claim.

Other proceedings

In addition to the Chapter 11 filings, Latam said its affiliates in Chile, Colombia and Ecuador will file accompanying proceedings in those countries.

The company’s affiliates in Argentina, Brazil and Paraguay are not included in the Chapter 11 filing, although the affiliates in Brazil are in discussions with the Brazilian government about the next steps and financial support for their Brazilian operations.

Latam is advised in this process by Cleary Gottlieb Steen & Hamilton LLP and Claro & Cia. as legal advisers, FTI Consulting as financial adviser and PJT Partners as investment banker.

Latam is a Santiago-based airline. The Chapter 11 case number is 20-11254.

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