Latam Airlines plans to return to capital markets after bankruptcy

Latin America’s largest airline plans to return to the US capital markets after eliminating nearly US$4 billion in debt during a restructuring that spanned several years.

Latam Airlines Group S.A. intends to re-list its American Depositary Receipts (ADRs) on the New York Stock Exchange this year after they were suspended during bankruptcy, Chief Financial Officer Ramiro Alfonsin said during a video interview.

It also expects to return to the international bond markets next year, he anticipated.

The Santiago-based airline, which emerged from Chapter 11 US bankruptcy law in November, is trying to reduce debt-to-earnings ratios even as it adds routes to its network.

According to Alfonsín, the company has a good opportunity for the market to recognize and understand the new Latam.

He also anticipated that it is likely that in 2024 Latam will begin to address the issue of refinancing.

The company, which operates 310 aircraft and has the largest share in at least four South American markets, was one of three major Latin American airlines that restructured in US bankruptcy courts when the covid-19 pandemic crippled air travel in 2020.

The company has about US$6.5 billion in debt, including more than US$1 billion in secured notes due in 2027 and 2029 that were issued as private placements during the restructuring.

According to a Bloomberg index, each of the notes has returned 15% since issuance, better than the average 7.6% gain for high-yield airlines.

The shares, which never left trading in Santiago, have lost 19% since the company emerged from bankruptcy. Its ADRs have been trading on the over-the-counter market.

Latam set 2023 projected Ebitdar, a standard measure of profitability for airlines, of between US$2 billion and US$2.2 billion, close to the figure it posted in 2019, the last full year before the pandemic.

Net debt is forecast to fall to around three times Ebitdar, down from four by the end of 2022.

EXPANSION PLANS

The company has about US$2.3 billion in liquidity after raising cash under a new ownership structure, including stakes held by US investment firms Sixth Street Partners, Strategic Value Partners, and international carriers Delta Airlines and Qatar Airways Group.

Latam plans to fly 38 more routes than before the pandemic as demand recovers. For international routes, it joined Delta in a joint commercial agreement, “among the most lucrative and least challenging expansion strategies,” according to Citigroup Inc. analyst Stephen Trent, who rates Latam as neutral/high risk.

In domestic markets, Alfonsin said Latam is looking at Colombia after low-cost carrier Viva Air ceased operations last month following a failed integration attempt with Avianca Holdings S.A., the country’s largest airline.

It also sees opportunities to increase the approximately 37% stake it claims to have in Brazil.

Rivals Gol Linhas Aéreas Inteligentes SA and Azul SA avoided filing for Chapter 11 during the pandemic but are now working on deals to shore up their finances.

In Alfonsín’s view, some companies had to file for Chapter 11 and restructure, while others tried to weather the storm, and are now seeing the consequences of that.

With information from Bloomberg