LATAM’s Modified $2.45bn Financing Approved By New York Court

LATAM’s modified $2.45 billion debtor-in-possession (DIP) financing proposal has been approved by the Bankruptcy Court of the Southern District of New York on September 18th.

LATAM’s modified financing proposal received a green light from the court. Photo: Tom Boon – Simple Flying

LATAM’s modified financing proposal approved by the court

Judge James Garrity Jr. approved the modified DIP financing proposal filed on September 17th. The modified DIP facility will allow LATAM to access $2.45 billion in financing amid the ongoing global crisis.

Roberto Alvo, CEO of LATAM Group, stated the following in a press release viewed by Simple Flying:

“The approval of the DIP is a very important step for the sustainability of the group and we appreciate the wide interest and the confidence in what LATAM has built and our long-term project. Now we begin a new phase, working towards the presentation of our reorganization plan as part of the Chapter 11 process.”

LATAM’s first financing proposal was denied. Photo: Getty Images.

On September 10th, the court denied LATAM’s original funding plan over concerns of certain shareholders, namely Qatar Airways and the Cueto and Amaro families, receiving preferential treatment in terms of stock in the reorganized airline.

LATAM’s modified financing proposal

On September 17th, LATAM modified its DIP financing structure. The plan is composed of two tranches. The first tranche, Trance A, consists of $1.125 billion coming from Oaktree Capital Management with Knighthead Capital providing $175 million.

Tranche C, the second tranche, which was the subject of contention in the previous rejection, was also modified. Qatar Airways, the Cueto Group, and the Eblen Group will, in the aggregate, provide $750 million. Knighthead will finance $250 million, while LATAM’s minority shareholders will be able to invest up to $150 million.

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The modified proposal did not show preferential treatment to select shareholders that the court was worried about. Photo: Getty Images

In total, Tranche A comes out to $1.3 billion, while Tranche C comes out to $1.15 billion. All in all, the DIP financing comes out to $2.45 billion, which is unchanged from the original financing proposal.

LATAM’s bankruptcy

On May 26th, 2020, LATAM Airlines Group and its affiliates in Chile, Colombia, Ecuador, the United States, and Peru entered into a voluntary reorganization process under Chapter 11 of the US Bankruptcy Code. In July, LATAM’s Brazilian affiliate also joined the filing. The bankruptcy, though a sobering reminder of the volatility of the airline industry, might not be a bad thing for the airline in the long-run.

LATAM, Latin America’s largest airline, saw an incredibly steep drop-off in demand and bookings with the onset of the global health crisis. Latin America continues to be ravaged by the virus, and many borders remain closed. All in all, this means LATAM has little access to booking revenue, although cargo remains strong.

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LATAM wound down its Argentina operations soon after filing for bankruptcy. Photo: Getty Images

However, cargo alone cannot sustain the airline. As such, the airline turned to this financing proposal to ensure the airline’s survival through reorganization.

As part of the reorganization, LATAM is looking at reducing its fleet down to 292 aircraft and recently petitioned to reject 19 Airbus A320 family leases. Additionally, the airline is bringing fresh faces into the fold with former CCO of JetBlue and interim CCO of Norwegian, Marty St. George, hopping on board as the airline’s new Chief Commercial Officer.

Two other major Latin American airlines, Aeromexico and Avianca, are also under bankruptcy protection.

Are you glad to see LATAM’s modified DIP financing proposal approved? Let us know in the comments!