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A US bankruptcy judge on Thursday rejected a $ 2.4 billion financing plan for LATAM Airlines, arguing that a convertible loan included as part of the package would amount to “inappropriate” treatment of other shareholders.
The move is a setback for LATAM, which needs short-term liquidity. But in a lengthy court decision, the judge left the door open for the Chilean airline to introduce a similar financing plan in the future, this time without the possibility of converting part of the credit into equity.
LATAM was raising resources through the DIP figure (Debtor in Possession for its acronym in English) after invoking Chapter 11 of the US bankruptcy law at the end of May.
The airline had no immediate comment on the decision.
The LATAM-backed proposal included a $ 1.3 billion loan from Oaktree Capital Management and a $ 900 million convertible loan from several key LATAM shareholders, including the Cueto family that controls the airline and Qatar Airways.
LATAM presented the bankruptcy financing proposal in July, which sparked opposition from other creditors, who even put together a separate financing plan with investment bank Jefferies Group. The key dispute was over the suitability of the convertible loan.
LATAM declared bankruptcy hit by the global crisis that caused the coronavirus pandemic. At the time, it was the largest airline in the world to file for bankruptcy due to COVID-19.
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