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Latam Airlines committee objects to supplemental DIP financing motion
By Caroline Salls
Pittsburgh, July 24 – Latam Airlines Group SA’s official committee of unsecured creditors objected to the company’s supplemental motion for approval of debtor-in-possession financing, according to a Thursday filing with the U.S. Bankruptcy Court for the Southern District of New York.
The committee said the supplemental DIP motion seeks approval of a single DIP facility consisting of a tranche A to be provided by Oaktree Capital Management and a tranche C provided by the Latam’s controlling shareholders.
The creditor group said it stated in a previous objection to the tranche C portion of the financing that “the shareholder DIP facility was the product of a non-arm’s length process that was rife with self-dealing and produced terms that are far more expensive than would be obtained in the market.”
If the DIP facility were approved, the committee said it would violate the Bankruptcy Code’s absolute priority rule and constitute an impermissible “sub rosa plan.”
“It would provide a roadmap for future debtors to make junior capital (equity) ‘senior’ simply by having the shareholders they favor subscribe to a convertible DIP tranche with enough of a discount to enable them to emerge from Chapter 11 with their holdings preserved or even improved, having availed themselves of the benefits of Chapter 11 while circumventing its core statutory protections for creditors,” the objection said.
In addition, the committee said the overall proposed DIP facility is too large, too expensive and not supported by a fair and adequate marketing process.
Latam is a Santiago-based airline. The company filed bankruptcy on May 25 under Chapter 11 case number 20-11254.
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