Latam Airlines says settlement paves way for confirmation of plan

By Sarah Lizee

Olympia, Wash., May 12 – Latam Airlines Group, SA filed a seventh amended Chapter 11 plan after it reached a settlement with creditors, according to court documents filed with the U.S. Bankruptcy Court for the Southern District of New York.

The company said it has reached a settlement resolving objections to the plan following mediation with backstop parties, which include a group of its unsecured creditors represented by Evercore, Delta Air Lines, Inc., Qatar Airways Investment (UK) Ltd., the Cueto group; the Eblen group; Banco del Estado de Chile as trustee for the Chilean notes issued by Latam; some holders of Chilean bonds; and official committee of unsecured creditors.

“This settlement further paves the path towards the plan’s confirmation hearing scheduled for May 17 and May 18, and adds support to the company’s consensual plan further paving the path for a successful emergence,” the company said in a 6-K filed with the Securities and Exchange Commission.

“At the same time, it allows the holders of Chilean notes to increase their recovery under the plan and to provide financing commitments under the backstop commitment agreements entered into by the debtors and the [Evercore] creditors in support of the plan of reorganization.”

Under the settlement, treatment for general unsecured creditors under class 5 of the plan was amended. Under the original plan, general unsecured creditors in this class could opt between participating in the new convertible notes class A or the new convertible notes class C depending on whether they elected to contribute new funds.

General unsecured creditors that opted for new convertible notes class A would receive the notes in settlement of their allowed unsecured claims, and those that chose the new convertible notes class C would receive the notes in exchange of a combination of a settlement of their allowed general unsecured claims, and a new money contribution at a ratio of about $0.921692 of new money for each $1.00 of claims.

Under the settlement, the ratio was amended to about $0.899774 of new money for each $1.00 of claims.

General unsecured creditors in class 5 that elect to receive new convertible notes class A or C will now also be entitled to receive a one-time cash distribution of about $212 million; or to the extent the EBITDAR of the business plan of the company for the period between Jan. 1 and the date that is 15 days prior to the exit from the Chapter 11 proceeding, is surpassed by more than $100 million by the actual EBITDAR of Latam for the same period, about $250 million plus 75% of excess over $250 million of difference between the actual EBITDAR of Latam over the EBITDAR under the business plan of the company, if applicable.

The additional cash distribution will be reduced by some fees payable to the backstop parties and by settlement payments.

General unsecured creditors that participate exclusively in the new convertible notes class A will be entitled to receive a cash payment equal to no less than 4.875% of the value of their claims, and those that participate both in the new convertible notes class A and C and are not Evercore creditors, will be entitled to receive half of that payment for the proportion of their claims that participate in the new convertible notes class A.

Any shortfall will be covered by the Evercore creditors from additional cash distributions received in connection with their participation in the new convertible notes class C; and, if necessary, from the fees paid to them under the commitment creditors backstop agreement.

The plan now contemplates the issuance of new Chilean notes denominated in Unidades de Fomento, in an amount equivalent up to $180 million, which will be provided in settlement of claims of general unsecured creditors in class 5 that elect to receive the notes in lieu of the new convertible notes class A and C and the additional cash distribution; provided that the backstop parties will not be allowed to elect to receive those notes.

These new Chilean notes will accrue a 2% interest per year and will mature on Dec. 31, 2042.

The supporting Chilean bondholders, representing in total about $135 million, joined the restructuring support agreement and agreed to provide backstop commitments under the commitment creditors backstop agreement for up to about $86 million. As such, they’ve agreed to backstop the subscription of a portion of the new common stock and the new convertible notes class C to be issued under the plan, up to of $86 million, in exchange of a 20% payment calculated over that amount.

The backstop parties have granted to Latam the option to extend the outside date under their respective backstop commitment agreements from Oct. 30 until Nov. 30 in exchange of a 1.34846% payment calculated over their respective backstopped amounts, payable to the extent the company exercises this option. Latam said currently it isn’t expecting to exercise this option and is expecting to successfully close its restructuring by the end of October.

Banco Estado and the official committee of unsecured creditors will withdraw all pending objections to the plan. The committee will also stop pursuing other bankruptcy-related actions in the Chapter 11 proceeding.

Also, Banco Estado, the supporting Chilean bondholders and the committee agreed to support the confirmation and implementation of the plan.

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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