New York judge approves Latam’s new financing plan for US $ 2.45 billion

A key hearing had this Friday Latam Airlines in the Court of the Southern District of New York, where finally the judge of the case, James L. Garrity, gave the go-ahead to the new financing proposal DIP (debtor in possession) of the firm, within the framework of the airline’s debt reorganization procedure under the protection of Chapter 11 of the US Bankruptcy Law.

The hearing began a couple of minutes after 3:00 p.m., and did not last 20 minutes, as this time all the parties supported the new financial rescue plan.

Judge Garrity said that based on the changes that were made to the proposal, the concerns that he had were addressed, so “I am prepared to approve” the new financing plan, he said. “I am ready to enter the order,” he commented.

In that regard, Judge Garrity added: “I thank you all for your efforts to resolve the matter. I apologize for the time it took me to answer you. I greatly appreciate their efforts and I hope we can move forward to confirm, which we hope will be a very successful reorganization.

Through a statement sent after the hearing, Latam indicated that “the decision of Judge James L. Garrity Jr. allows the group to access the US $ 2.45 billion required to face the impact of Covid-19.”

The attorney representing Latam, Lisa Schweitzer, of the Cleary Gottlieb study, said at the hearing that this Friday she would enter the final documents, and the judge said that “we will look at it and approve it as quickly as we can.” So now only the signature would remain.

To devise this new rescue plan, several days of negotiations were required. This, after a week ago, Judge Garrity rejected the DIP financing proposals made by the current shareholders of the airline when questioning the conversion of debt into shares. But Latam urgently needed the resources to continue its operations during the process. As the company expects to be operating 15% of its flights by September, its cash desk demands more every day.

For this reason, after the judge’s decision on September 10, Latam’s main shareholders -the Tranche C lenders-, Oaktree -which signed for Tranche A- and its advisers quickly began negotiations to agree on a new financing alternative, but this time including those who just two months ago were the main opponents of the plan that Latam presented to the Court and who presented alternative proposals: investors Jefferies and Knighthead Capital and the Official Committee of Unsecured Creditors.

In fact, during the hearing, precisely the main opponents of the previous proposal decided to withdraw their objections. For example, Allan Brilliant, partner at Dechert LLP, representing the Official Committee of Creditors of Latam, expressed his support for the current one.

Also, Brilliant said that since the judge’s decision last week, “the debtors have worked constructively with the Committee on the terms of the loan agreement.”

For his part, Victor Noskov, representing Knighthead Capital Management, also withdrew his objections and supported the company’s new plan, also thanked the Court for the work done, and explained that “once its opinion was issued (last week ), all parties and stakeholders understood the urgent need to address the company’s liquidity problems, and we are very happy to be able to work together, debtors and other lenders, to address financing problems and be part of the solution for the company. I have been a strong believer in this company since the beginning of Chapter 11, and we look forward to the next steps in this case. “

Through a statement, the CEO of Latam, Roberto Alvo, stated that “the approval of the DIP is a very significant step for the sustainability of the group and we appreciate the broad interest and trust in what Latam has built and in our long-term project . Now we begin a new stage which is to present our reorganization plan within the Chapter 11 process ”.

The new plan proposed by Latam eliminates the option to convert the debt into shares that had led to the refusal of said plan. The new proposal consists of a deferred term credit line for up to US $ 2.45 billion, which, like the original, is divided into two tranches: A and C.

In the case of tranche A, the amount of capital committed amounts to US $ 1.3 billion, of which Oaktree Capital Management will provide US $ 1,125 million. The remaining US $ 175 million will be contributed by Knighthead, Jefferies and / or other entities that are part of the creditors syndicate organized by Jefferies. The interest rate is around 14%.

Tranche C, in turn, includes a capital contribution of up to US $ 1,150 million, of which Latam shareholders that participated in the original proposal, that is, the Cueto group, the Eblen group and Qatar Airways, will put US $ 750 millions.

Another US $ 250 million will be provided by Knighthead and Jefferies, and the remaining US $ 150 million may be provided by shareholders or creditors of Latam, or new investors of the same if certain conditions are met. The rate for this section is around 27%.

On the other hand, the commercial agreement between Delta Air Lines and Latam Airlines received the go-ahead by the Brazilian authorities. The trans-american joint venture agreement (JVS) between the two companies was presented to the Administrative Council for Economic Defense (Cade) of Brazil on July 14 of this year and this Friday it was announced that it was approved without any conditions. This, “after an evaluation of the free competition considerations and taking into account the unprecedented impact of Covid-19 in the airline industry,” Latam said through a statement. Latam highlights that this is the first approval of the agreement between the two companies since it was signed in May 2020 and that in September 2019 it was announced that there was an initial framework agreement for this alliance.