Avianca has filed with the US Bankruptcy Court for the Southern District of New York to receive approval in $2 billion of debtor-in-possession (DIP) financing. The Latin American airline is seeking approval for the funding to ensure its survival as it reorganizes under Chapter 11.
Avianca seeking approval for $2 billion in financing
Avianca is seeking approval for around $2 billion in financing. Tranche A is a $1.27 billion senior loan, while Tranche B consists of a $722 million subordinated loan. The DIP financing plan includes about $1.217 billion of new funds comprised of $881 million in Tranche A and $336 million in Tranche B.
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Over 100 lenders are participating in the Tranche A facility. This includes $590 million from new institutional lenders, $290 million from holders representing a majority of Avianca’s 2023 senior secured notes, and another approximately $408 million of rollups and purchase consideration. Also, $240 million of the Tranche A new funds are structured as a backstop, which will allow the eventual participation of one or more governments.
The Tranche B DIP loan of $722 million includes $336 million in new money financing and a rollup of around $386 million of secured convertible debt the airline issued between December 2019 and 2020. The new money financing came from certain existing convertible debt lenders, including Kingsland Holdings S.A., third party investors, and other lenders, including United Airlines, which participated solely in the Tranche B loan rollup by refinancing their existing convertible debt.
Speaking on the financing, President and CEO of Avianca, Anko van der Werff, stated the following:
“We are extremely pleased with the support received from a large number of third-party institutional investors and our existing lenders. We believe this demonstrates the market’s confidence in Avianca’s future as a strong, competitive and profitable airline. Securing these financing commitments is another concrete step forward in our Chapter 11 reorganization process and we look forward to the U.S. Court approval of our proposed DIP financing package.”
Avianca is using key assets, including its ownership stakes in the LifeMiles program and cargo subsidiaries, along with its key brands and cash accounts.
The airline has previously indicated that, without state aid, it would not be possible for the airline to survive. Previously, the airline was to receive up to $370 million from the Colombian government, though a court blocked that move.
Will the financing be approved?
There is a hearing on the financing scheduled for October 5th. Then, the court will review the proposed financing plan, with a keen eye for any terms or conditions that it may not find palatable.
Avianca, however, is optimistic that the court will approve the proposed financing package. The airline right now is focused on building up its operations both at home and abroad. The airline is the leading carrier to and from Colombia.
A recent debacle with LATAM’s DIP financing
Avianca is going for DIP financing after LATAM went a couple of rounds on its DIP financing proposal. DIP financing is special funding that can help keep airlines (and other companies) afloat during a Chapter 11 financing. Securing funding is considered to be a signal of faith from lenders in the survivability of the airline with a new proposal.
However, the courts do keep a watch on DIP financing proposals. LATAM had outlined a $2.45 billion proposal that drew some concerns from the court over the preferential treatment of some shareholders, leading the court to reject the financing. After LATAM made some tweaks to its proposal, the court approved the DIP financing.
Do you think the court will approve Avianca’s DIP financing proposal? What do you think of Avianca’s current state of affairs? Let us know in the comments!