Yesterday, the Bankruptcy Court of the Southern District in New York approved the Debtor-In-Possession (DIP) Financing of Avianca Holdings. The green light allows Avianca to access over US$2 billion in investments as part of its Chapter 11 reorganization. What does this mean for the airline? Let’s investigate further.
How is the money divided?
Avianca’s DIP Financing is divided into two tranches. According to the airline, US$1.217 billion of the financing is composed of new funds that will sustain the on-going operations.
Tranche A is a US$1.27 billion senior loan, in which more than 100 lenders are participating, including, possibly, the Colombian Government. Of this Tranche, US881 million are new funds, said Avianca.
Meanwhile, Tranche B is a junior loan of US$722 million, of which US$336 million is new funds.
Despite the approval, the DIP Financing still depends on the US judge’s formal authorization and Avianca fulfilling certain conditions. The final go-ahead is expected to be delivered next week.
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What did Avianca say about the DIP Financing?
For Avianca, obtaining the DIP Financing is a big step forward in its Chapter 11 reorganization. As we’ve seen, LATAM got in a little bit of trouble when the judge denied its first DIP Financing. Then, it presented a new scheme, and New York approved it.
Meanwhile, Aeromexico has been pushing back its meeting with the Court to analyze its DIP Financing. If there are no further changes, the hearing will take place at the end of October.
In contrast, Avianca hasn’t faced these difficulties. Anko van der Werff, Avianca’s CEO, said,
“With the approval of the US Court of our DIP Financing, Avianca increases its financial liquidity, backing up our operations while we keep flying and serving our clients.”
Currently, Avianca is flying domestically to 21 cities in Colombia. It is also operating in Ecuador and Peru. Internationally, it has 14 active routes out of Colombia. Adrian Neuhauser, Avianca’s CFO, added,
“We thank our lenders again for their support and trust in the future of Avianca. We will move forward with our Chapter 11 process, looking to present our reorganization plan to the US Court in the medium term.”
The controversies of Avianca
Avianca’s reorganization process is moving forward, despite some recent controversies. The most important one is about the Colombian State loan that a Colombian court is currently denying.
Colombia and Avianca settled on a US$370 million State loan. Still, a Court in the province of Cundinamarca has blocked it, saying that the current financial situation of Avianca is a concern. The Court added that the guarantees provided by the Colombian Government could be unuseful.
But also, yesterday, Avianca got into a social media controversy. The carrier revealed that it allowed a trumpet concert on a flight between Medellín and Bogotá. Despite the media rampage against the seemingly thoughtless idea, Avianca hasn’t said anything about it. In a moment when Latin American airlines are joining forces to reactivate the industry in the region by launching health protocols aimed to restore travelers’ confidence, Avianca’s concert wasn’t the best of ideas.
What do you think about Avianca’s financing? Let us know in the comments.