LATAM Files Its Plan For Reorganization – Here’s What’s In It

LATAM Airlines Group filed its Plan For Reorganization under Chapter 11 on Friday night. The Plan would infuse up to US$8.19 billion in new funds, strengthen LATAM’s balance sheet, liquidity, and capital structure, allowing the carrier to exit the bankruptcy process in the United States.

LATAM Files Its Plan For Reorganization – Here’s What’s In It
LATAM filed its Plan of Reorganization. It is one step closer to exiting its Chapter 11 bankruptcy process. Photo: Vincenzo Pace | Simple Flying.

Strong balance sheet

Over the last couple of years, LATAM has been in a bankruptcy process in the United States due to the COVID-19 pandemic. The crisis crippled LATAM’s demand and put the South American carrier in a difficult spot. Therefore, the airline filed for Chapter 11 in May 2020. Now, the skies seem clearer from the company.

Roberto Alvo, LATAM’s CEO, said,

“The last two years have been characterized by hardship across the globe. We have reeled as global aviation and travel were brought to a virtual standstill by the largest crisis to ever face our company. While our process is not yet over, we have reached a critical milestone in the path to a stronger financial future.”

The plan provides for a multi-billion dollar capital infusion that will strengthen the company’s balance sheet. According to the airline, there would be an infusion of US$8.19 billion through a mix of new equity, convertible notes, and debt. This amount would enable LATAM to exit Chapter 11 with appropriate capitalization to implement its business plan.

Upon emergence, LATAM would have total debt of approximately US$7.26 billion and liquidity of up to US$2.67 billion.

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LATAM would have an infusion of US$8.19 billion. Photo: Vincenzo Pace | Simple Flying

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When would LATAM exit Chapter 11?

After presenting its Chapter 11 plan, LATAM is closer to exiting the bankruptcy process. LATAM’s Latin American peers, Aeromexico and Avianca, have also filed their respective plans. Both carriers aim to exit before the year ends or in 2022’s first quarter.

LATAM is planning something similar. In January, the Court will evaluate the materials and determine if they are sufficient to proceed. Next month, LATAM would begin its solicitation period and seek enough votes to approve the Plan. By March, the Court would evaluate the Plan for execution. Finally, it would have a successful confirmation hearing and exit Chapter 11.

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LATAM doesn’t believe Azul’s proposal would be of any interest. Photo: Guillermo Quiroz Martínez via @gquimar.

What about Azul’s proposal?

In its Disclosure Statement, LATAM Airlines discussed Azul’s plan to acquire the Chilean-based company. In the last few weeks, Azul’s management said it would present LATAM’s investors with a plan to buy the company.

LATAM did point out the fact that it received “certain non-binding expressions of interest and preliminary terms regarding potential restructurings.”

One of these offers came from Azul, the Brazilian carrier, which sent a letter to LATAM’s counsel proposing a general, non-binding, and preliminary overview regarding a possible transaction to acquire the company. Nonetheless,

“The overview did not provide any process or timeline for the transaction and did not address various regulatory concerns or other value and execution risks if such transaction were pursued.”

Additionally, LATAM did say that rejecting the Plan of Reorganization in favor of some alternative could require an extensive and time-consuming process. In the end, it would not result in a better recovery. “Any alternatives now available to the Debtors are inferior,” said LATAM.

What do you think about LATAM’s plan? Let us know in the comments below.

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