Latam Airlines term loan B could stumble in syndication on poor market conditions

By Sara Rosenberg

New York, Sept. 30 – Market sources are hearing that Latam Airlines’ term loan B may be having a hard time filling out by Monday’s commitment deadline as the airline sector in general is a tough sell in the current environment.

“Definitely struggling a lot to get close to book size. It’s a better story than Brightspeed,” according to a market source, referring to Brightspeed's $2 billion term loan and $1.87 billion bond deal pulled from the market earlier in the week.

“But airlines at the start of a potential recession are hard to get through credit committees,” the source said.

“Airlines are viewed as very cyclical – both business and leisure travel. Less demand (in a recession) but the planes mostly still fly and the employees get paid, so revenue declines drop mostly to the cash flow line,” the source continued.

What does work in Latam’s favor is that the company is “simple airline recovering to 2019 levels story, and they have Delta coming in with an investment which seems like an endorsement of viability,” the source explained.

The source added that the recently pulled Brightspeed deal was “overlevered speculation on massive CapEx needs to convert very rural customers to fiber in a world of 5G towers and Starlink satellites with a sponsor that many do not like.”

Bond deal under discussion

The Chile-based air carrier's Chapter 11 exit financing also includes a $1.5 billion two-part offering of senior secured notes, in tranches of five-year notes and seven-year notes.

That deal, ostensibly from an emerging markets corporate issuer, was driven into the U.S. high-yield bond market on a sizable wave of reverse inquiry (some say as much as 50% of the deal size), much of it emanating from accounts that participated in Latam Airlines' debtor-in-possession loan, sources say.

Early guidance was heard to be in the low 13% area for the five-year notes and in the low-to-mid 13% area for the seven-year notes.

Lately conversations have both tranches coming in a context of 13% to 14%, a trader said.

The deal is expected to price during the Oct. 3 week; however, notwithstanding the reverse inquiry, pricing remains under discussion, the trader said.

And the market turbulence to which the Brightspeed acquisition financing succumbed remains in play, sources say.

Latam Airlines filed for Chapter 11 bankruptcy protection in May 2020.

The bankruptcy court approved its restructuring in June 2022.

Paul A. Harris contributed to this story.

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