LATAM airlines secures up to US$750 million in funding during receivership

RIO DE JANEIRO, BRAZIL – The Latam Airlines group on Wednesday, September 29, announced that it has secured a credit line of up to US$750 million in a new round of DIP (debtor in place) financing. This is a type of financing for companies undergoing judicial receivership.

The company filed for bankruptcy in the United States (Chapter 11, a kind of judicial receivership) in May 2020, followed two months later by its subsidiary, Latam Brasil.

The lenders for this stage (tranche B) are Oaktree Capital Management, L.P., Apollo Management Holdings, and a number of investment funds.

The airline says it has received “multiple offers from investors” for this stage, and that the rates and terms of tranche B are “more competitive” than those of tranches A and C.

“We have received multiple offers from investors who have expressed interest in joining us in our Chapter 11 proceedings. This proposal will allow us to access better financing conditions, thereby resulting in significant cost savings and benefiting our creditors and LATAM,” said Latam’s Vice President of Finance Ramiro Alfonsín.

DIP financing consists of lines of US$1.3 billion in Tranche A, US$1.15 billion in Tranche C, and up to US$750 million in Tranche B. To date, US$1.65 billion has been disbursed under Tranches A and C.

The incorporation of Tranche B funds from the DIP financing is subject to the approval of the federal Southern District Court in New York (SDNY), which is monitoring the receivership process.

COMPANY HAS UNTIL OCTOBER 15 TO SUBMIT PLAN TO CREDITORS

Last October 10, Latam Airlines asked the U.S. courts to extend the deadline to present its receivership plan.

The deadline to present the plan was set for September 15, but the company asked for an extension to October 15. This is the 4th time that Latam has asked for a postponement in presenting the plan. The company has until November 23 to present a plan before competitors can submit their plans to its creditors.

The American court accepted the request, which allows Latam exclusivity in presenting a plan to its shareholders and creditors, without other competitors presenting acquisition proposals at the same time.

Azul has shown interest in taking over Latam Brasil, but cannot present a plan to its rival’s creditors while the exclusivity period is running. The leadership of Latam has already publicly rejected the proposal and the company’s CEO in Brazil Jerome Cadier says that airfares will increase should the merger take place.

The limit for approval of Latam’s plan by U.S. authorities is now December 15, 2 months after the proposal is presented.

A group of Latam’s 9 main creditors, who together account for over US$4 billion in debts receivable from the company, sent a letter to the New York Court criticizing the airline group’s receivership proposals.

Among these creditors is Citigroup. Questioned, the bank stated that it “does not comment on ongoing lawsuits.”

Latam, in turn, reported that “no creditor objected” to its request for a deadline extension to present an exclusive plan.

“This shows that creditors trust that Latam will present a plan that addresses the interests of all stakeholders and will be approved. Precisely because they see that there are differences between the parties, which is natural and expected in a process of this magnitude and with sophisticated players [participants],” the company said in a statement.

According to the company, “the discussion only exists because Latam is strong, capitalized and will exit Chapter 11 much better than it entered.”