Latam Airlines wins confirmation of Chapter 11 plan of reorganization

By Sarah Lizee

Olympia, Wash., June 21 – Latam Airlines Group, SA announced that the U.S. Bankruptcy Court for the Southern District of New York has confirmed its Chapter 11 plan of reorganization.

Backed by nearly all of the company’s creditors, the plan is the result of months of negotiations among major stakeholders, which included an extensive mediation period, Latam said.

The company said it is now focused on exiting the Chapter 11 reorganization process in the coming months.

For this to happen, Latam needs approval at the extraordinary shareholders' meeting of the new capital structure contemplated in the plan, the registration of shares and bonds in the securities registry of the Financial Market Commission and the implementation of the respective preferential offering periods of the convertible shares and bonds in favor of Latam's current shareholders.

Once effective, the plan will inject roughly $8 billion through a combination of a capital increase, the issuance of convertible bonds and new debt. This includes $5.4 billion of financing backed by major shareholders Delta Air Lines, Qatar Airways and Grupo Cueto, and Latam's major creditors, the parent ad hoc group creditors and some local bondholders.

As previously reported, the company recently filed an amended Chapter 11 plan after reaching a settlement with creditors.

Exit financing

Latam recently signed commitment letters for $2.75 billion in exit financing, as previously reported.

The financing will be structured as:

• A $500 million exit revolver that will accrue interest at Latam's election, either ABR plus 300 basis points, or SOFR plus 400 bps;

• A $750 million term B loan facility, which will accrue interest at Latam's choice, either ABR or SOFR plus an applicable margin to be determined at time of allocation;

• A $750 million bridge to five-year notes facility; and

• A $750 million bridge to seven-year notes facility.

The interest rate for the bridge loans will be determined based on market conditions available at the time of closing.

The financing is with JPMorgan Chase Bank, NA, Goldman Sachs Lending Partners LLC, Barclays Bank plc, BNP Paribas Securities Corp. and Natixis, New York Branch.

The debt is in addition to the $5.4 billion of equity the company secured in January.

The exit financing commitment letters also provide for $1.17 billion in financing to be provided during the life of the Chapter 11 process prior to exit in the form of a junior debtor-in-possession financing with a lower repayment preference than the exit financing.

The institutions with which the commitment letter for the junior DIP financing was entered into are Delta Air Lines, Inc., Lozuy SA, Costa Verde Aeronautica SA, QA Investments Ltd. and members of Latam's informal group of creditors represented by Evercore.

The exit financing has been structured as a DIP financing to be provided during the Chapter 11 process. Unlike the DIP financing currently in place, it has been structured so that, subject to the satisfaction of certain conditions, it will remain in place after Latam's emergence from the Chapter 11 process.

To the extent those conditions are met, on the exit date from the Chapter 11 process, the exit financing will automatically convert into a financing that will remain in place thereafter.

This doesn’t apply to the junior DIP financing, which must be fully repaid prior to the exit from the Chapter 11 proceeding.

The proceeds from the exit financing and the junior DIP financing will be used in part to repay the existing DIP financing in full during the Chapter 11 process.

Settlement reached

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 agreed to withdraw all pending objections to the plan. The committee said it would 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.

Other creditor treatment

Under the plan, administrative expense claims will be paid in full.

Priority tax claims and other priority claims will be paid in full.

Holders of DIP claims will receive treatment provided for under the exit notes/loan agreement to the extent applicable; cash equal to the amount of their claims, or other treatment as agreed to by the disbursing agent and holders.

Spare engine facility claims, other secured claims, Latam 2024/2026 bond claims, general unsecured claims against each debtor other than Latam parent, Piquero Leasing Ltd. and Latam Finance Ltd., litigation claims intercompany claims and equity interests in each debtor other than Latam parent are unimpaired.

Holders of revolving credit facility claims will receive the following:

• If a holder elects to receive class 1a treatment, a distribution in cash equal to the allowed amount of their claims, and their pro rata share of the RCF tranche A exit loans;

• If a holder elects to receive class 1b treatment, a distribution in cash equal to the amount of all interest, fees, costs and expenses that have been allowed on account of their claims, and their pro rata share of the RCF tranche B exit loans.

Holders of Piquero general unsecured claims will receive the Piquero consideration, which is $100 in cash.

Equity interests in Latam parent will be retained and reinstated. On the effective date, holders of existing equity interests will be substantially diluted from the issuance of ERO new common stock and the new convertible notes back-up shares, including upon any conversion of the new convertibles into equity, so that they hold no more than 0.1% of the common stock in Latam parent in respect of those interests.

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

© 2015 Prospect News.
All content on this website is protected by copyright law in the U.S. and elsewhere. For the use of the person downloading only.
Redistribution and copying are prohibited by law without written permission in advance from Prospect News.
Redistribution or copying includes e-mailing, printing multiple copies or any other form of reproduction.