Latam the latest airline to file for bankruptcy protection

BY Richard Summerfield

Latam Airlines Group SA, Latin America’s largest air carrier, has filed for Chapter 11 bankruptcy protection in New York after the COVID-19 pandemic grounded flights across the region.

“Latam entered the COVID-19 pandemic as a healthy and profitable airline group, yet exceptional circumstances have led to a collapse in global demand and has not only brought aviation to a virtual standstill, but it has also changed the industry for the foreseeable future,” said Roberto Alvo, chief executive of Latam.

He continued: “We have implemented a series of difficult measures to mitigate the impact of this unprecedented industry disruption, but ultimately this path represents the best option to lay the right foundation for the future of our airline group. We are looking ahead to a post-COVID-19 future and are focused on transforming our group to adapt to a new and evolving way of flying, with the health and safety of our passengers and employees being paramount.”

The airline will continue to fly while it is in bankruptcy protection. Its affiliates in Argentina, Brazil and Paraguay were not included in the Chapter 11 filing, though affiliates in Chile, Peru, Colombia, Ecuador and the US were.

To help fund its continued operations throughout the bankruptcy period, the company has secured funding from a number of its major shareholders, including the Cueto and Amaro families and Qatar Airways. In total, the company has secured around $900m in debtor-in-possession (DIP) financing.

However, the company has given no indication whether its largest shareholder, Delta Air Lines, which holds 20 percent of the company, will help. The airline noted in its statement: “To the extent permitted by law, the group would welcome other shareholders interested in participating in this process to provide additional financing.” The airline also noted that it had about $1.3bn in cash on hand.

Latam has struggled since the outbreak of the COVID-19 pandemic. In mid-March, it cut 90 percent of its flights and by April was down to just five routes. Earlier this month, Latam confirmed that it would lay off 3 percent of its workforce, some 1400 employees.

Of course, the company is not the only airline to suffer. Fellow South American airline Avianca has already filed for Chapter 11 bankruptcy, while Virgin Australia entered voluntary administration last month.

News: Latam Air Files Chapter 11 Bankruptcy, Stymied by Lockdowns

JCPenney files for bankruptcy protection

BY Richard Summerfield

JCPenney, one of the largest and most historic clothing and homeware retailers in the US, has filed for Chapter 11 bankruptcy in the US Bankruptcy Court for the Southern District of Texas.

JCPenney had about 846 stores, an e-commerce site and about 95,000 employees around the world, prior to the filing. In response to the COVID-19 outbreak, in March, the company announced the temporary closure of its stores and business offices. Though some of its locations recently reopened, the majority are still closed. Under the terms of the company’s business plan, which was filed with the US Securities and Exchange Commission (SEC), JCPenney plans to permanently close 242 stores, about 30 percent. It has yet to disclose which locations will be shuttered.

The company has reached an agreement with most of its lenders on the turnaround plan that will allow it to stay in business as a more financially healthy company. In a statement announcing the filing, JCPenney confirmed it had approximately $500m in cash on hand as of the Chapter 11 filing date. The company has also received commitments for $900m in debtor-in-possession (DIP) financing from its existing first lien lenders, which includes $450m of new money.

Though the company cited the COVID-19 outbreak for its filing, in reality JCPenney has suffered many years of mismanagement and decline. The company’s most recent profitable year was 2010, and its net losses since have totalled $4.5bn. In 2019, JCPenney suffered a 5.5 percent decline in first quarter sales and was forced to close 27 stores across the country.

“The Coronavirus (COVID-19) pandemic has created unprecedented challenges for our families, our loved ones, our communities, and our country,” said Jill Soltau, chief executive of JCPenney. “As a result, the American retail industry has experienced a profoundly different new reality, requiring JCPenney to make difficult decisions in running our business to protect the safety of our associates and customers and the future of our company.

She continued: “Until this pandemic struck, we had made significant progress rebuilding our company under our Plan for Renewal strategy – and our efforts had already begun to pay off. While we had been working in parallel on options to strengthen our balance sheet and extend our financial runway, the closure of our stores due to the pandemic necessitated a more fulsome review to include the elimination of outstanding debt.”

JCPenney became the fourth national retailer to file for bankruptcy in the US in May, following J.Crew Neiman Marcus and Stage Stores (SSI).

News: JCPenney files for bankruptcy

Satellite operator Intelsat files for Chapter 11

BY Fraser Tennant

In a move to enable its financial restructuring ahead of C-band spectrum changes for 5G services, as well cut some of its $15bn of debt, communications satellite services provider Intelsat and certain of its subsidiaries have filed for Chapter 11 bankruptcy.

The restructuring process is intended to enhance Intelsat’s liquidity and substantially reduce its legacy debt burden, allowing the company to emerge from Chapter 11 with a strengthened balance sheet to complement its strong operating model and future growth plans.

To help provide sufficient liquidity during the restructuring process to support ongoing operations, Intelsat has secured a commitment for $1bn of debtor-in-possession (DIP) financing, subject to court approval.

“This is a transformational moment in the history of our company,” said Stephen Spengler, chief executive of Intelsat. “Intelsat is the pioneer and foundational architect of the satellite industry. For more than 50 years, we have been respected for quality, innovation, sector leadership and premium services. Our success has come despite being burdened in recent years by substantial legacy debt. Now is the time to change that.”

One of the primary catalysts for restructuring the balance sheet now is Intelsat’s desire to participate in the accelerated clearing of C-band spectrum under the Federal Communications Commission (FCC) order in support of a build-out of 5G wireless infrastructure in the US.

“We intend to move forward with the accelerated clearing of C-band spectrum in the US and to achieve a comprehensive solution that would result in a stronger balance sheet,” continued Mr Spengler. “This will position us to invest and pursue our strategic growth objectives, build on our strengths, and serve the mission-critical needs of our customers with additional resources and wind in our sails.”

While it moves through the Chapter 11 restructuring process, Intelsat’s day-to-day operations, engagement with customers and partners, and capital investments will continue as usual. At the same time, the company is also managing the economic slowdown impacting several of its end markets caused by the coronavirus (COVID-19) global health crisis.

Mr Spengler concluded: “At the end of the Chapter 11 process, we will be on stronger financial footing for the future, further enhancing our industry-leading portfolio of space-based communications services and paving the way for our continued innovation and investments to benefit our customers.”

News: Intelsat files for Chapter 11 bankruptcy

Covéa’s $9bn deal to acquire PartnerRe called off

BY Fraser Tennant

Citing market dislocation caused by the coronavirus (COVID-19) pandemic, French insurer Covéa has abandoned a $9bn deal to purchase PartnerRe, a Bermuda-based reinsurer owned by investment holding company Exor.

The deal to acquire PartnerRe is the biggest involving a European buyer to collapse due to the COVID-19 pandemic, which has made it increasingly difficult for bidders to close pre-crisis transactions due to drops in share price.

“In view of the unprecedented current conditions and the significant uncertainties weighing on the global economic outlook, we have told Exor that the context does not allow the proposed acquisition of PartnerRe to be carried out on the terms initially envisaged,” explained Covéa in a statement.

In response, Exor, the holding firm of Italy’s Agnelli family, acknowledged the French insurer’s notice that it will not honour its commitment to acquire PartnerRe in accordance with the terms of the Memorandum of Understanding (MOU) announced on 3 March 2020. Furthermore, the Exor board of directors expressed its strong belief that a sale of PartnerRe on terms inferior to those established in the MOU fails to reflect the value of the reinsurer.

“In attempting to renegotiate the agreed deal terms, Covéa has never suggested the existence of a material adverse change, including pandemic risk, or any other issues at PartnerRe that would explain its refusal to honour its commitments under the MOU and we believe that no such basis exists,” said Exor in a separate statement.

The Exor board also stated that PartnerRe, which enjoys one of the highest capital and liquidity ratios in the global reinsurance industry, is not expected to be significantly affected by the COVID-19 outbreak.

An Exor spokesperson said that Covéa is required to pay an indemnity, although the amount due is confidential. However, the MoU between Covéa and Exor stipulated a $175m penalty should Covéa pull out of the deal.

News: France's Covea backs out of $9 billion purchase of Exor's PartnerRe

Avianca files for Chapter 11 bankruptcy

BY Richard Summerfield

Avianca Holdings, the second largest airline in Latin America, has filed for Chapter 11 bankruptcy protection after failing to meet a bond payment deadline, while its pleas for COVID-19 aid from Colombia’s government have so far been unsuccessful.

The company filed for bankruptcy in a court in New York on Sunday as the coronavirus outbreak continues to impact the aviation industry. Global air travel has fallen by 90 percent since the outbreak, according to the International Air Transport Association. The body predicts Latin American airlines will lose $15bn in revenues this year – the biggest drop in the industry’s history.

“Avianca is facing the most challenging crisis in our 100-year history as we navigate the effects of the COVID-19 pandemic,” said Anko van der Werff, chief executive of Avianca. “Despite the positive results yielded by our ‘Avianca 2021’ plan, we believe that, in the face of a complete grounding of our passenger fleet and a recovery that will be gradual, entering into this process is a necessary step to address our financial challenges.

“When government-mandated air travel restrictions are lifted and we are able to gradually resume our passenger flights, we look forward to welcoming back our furloughed employees and playing a leading role in restarting the economy in Colombia and our other key markets,” he continued. “We greatly appreciate the dedication of our employees to Avianca and to serving the more than 30 million passengers that fly our airline each year. We remain committed to our purpose to connect people, families and businesses.”

Undoubtedly, the COVID-19 crisis has not helped matters. Avianca has not flown a regularly scheduled passenger flight since late March and most of its 20,000 employees have gone without pay through the crisis. Furthermore, the pandemic has cut more than 80 percent of Avianca’s income, and the company has been struggling with high fixed costs. It had debts of $7.3bn in 2019.

Avianca previously filed for bankruptcy in the early 2000s and was rescued by a deal with Bolivian oil tycoon German Efromovich.

News: World's second-oldest airline, Avianca, driven to bankruptcy by coronavirus