Latam Airlines’ proposed DIP amendment draws committee objection

By Sarah Lizee

Olympia, Wash., March 11 – Latam Airlines Group, SA’s motion seeking court approval of an amendment and restatement of its $3.3 billion of debtor-in-possession financing drew an objection Friday from the official committee of unsecured creditors, according to a filing with the U.S. Bankruptcy Court for the Southern District of New York.

As previously reported, the company first filed the motion and term sheet for the financing on Feb. 18. However, on March 7, the company filed a new motion that reflected changes to the original DIP terms.

The committee said that when it reviewed the original motion, it believed the contemplated financing was expensive, but its comments were limited to some of the credit agreement’s covenants. The committee later learned that some of the DIP lenders had renegotiated the terms of their financing commitments with the debtors, which resulted in a significant increase in the cost of the financing.

The committee also noted that the financing contains front-load sizable fees that lenders will earn immediately upon the court’s approval of the motion, even if the amendment does not close.

Specifically, the revised DIP commitment letter includes a tranche A fee and a tranche B fee, each of which is equal to 4% of the lenders’ commitments under the respective tranche – totaling over $82 million.

There is also a tranche C make-whole fee equal to all interest and fees that would have been earned by the tranche C lenders through Aug. 8, and a tranche C amendment and restatement fee equal to 1% of the lenders’ commitments to fund tranche C of the credit agreement, each of which will be fully earned upon the court’s approval of the motion.

“Given this front-loaded fee structure, approval of the motion and entry into the A&R DIP credit agreement is only beneficial to the debtors if the financing under the A&R DIP credit agreement is made available and remains available for an extended time period, as contemplated by the loan documents, and there are no premature defaults or early terminations,” the committee said in its objection.

“Accordingly, the committee believes that the motion should be denied unless certain provisions that might prevent the debtors’ from receiving the full benefit of the maturity extension are removed.”

The committee said it understands that other parties in interest may be seeking to arrange alternative financing on improved terms.

Latam Airlines is a Santiago, Chile-based airline. The company filed bankruptcy on May 25, 2020 under Chapter 11 case number 20-11254.

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