LATAM Airlines wins $734m financing approval

May 2022 | DEALFRONT | BANKRUPTCY & CORPORATE RESTRUCTURING

Financier Worldwide Magazine

May 2022 Issue

In the next step of its bid to exit Chapter 11 bankruptcy, airline holding company LATAM Airlines Group SA, along with its affiliates in Brazil, Chile, Colombia, Ecuador and Peru, have obtained court approval of a deal with creditors that will guarantee financing for a restructuring proposal.

The deal, approved by James Garrity, US bankruptcy judge for the Southern District of New York, gave the go-ahead to the Chilean airlines’ backstop agreement with a creditor group, in which the creditors will guarantee financing if no other entity steps up to provide it.

Under the terms of the deal, the 15 backstop creditors will receive $734m in fees to ensure that $5.4bn in stock and debt offerings are fully financed. The agreement is part of LATAM airline’s larger restructuring plan that calls for it to raise more than $8bn to pay creditors and exit bankruptcy.

Judge Garrity made his ruling despite protests from a number of junior creditors who oppose hundreds of millions of dollars in associated fees being paid to creditors. “The objectors have not rebutted the presumption that entry into the backstop agreements is a proper exercise of the debtors’ business judgment,” said the judge in his 85-page decision.

LATAM Airlines – the largest airline in Latin America – was one of many airlines to be severely impacted by the coronavirus (COVID-19) pandemic, and first sought Chapter 11 bankruptcy protection in May 2020 when world travel came to a juddering halt.

However, since then, the airline’s fortunes have improved, with an uptick in revenue, a reduction in unit costs and significant advances in the Chapter 11 bankruptcy process. This has largely been achieved by simplifying processes, redesigning fleet strategies, renegotiating contracts and restructuring costs throughout 2021.

In addition, LATAM Airlines has taken a fundamental step toward future operations projection with its sustainability strategy for 2050, which focuses on climate change, the circular economy and shared value. The strategy considers well-defined goals, such as zero waste in landfills by 2027, carbon neutrality by 2050 and the protection of iconic ecosystems in South America.

In terms of revenue, the airline recently announced its financial results for the fourth quarter of 2021 – results which showed continuous improvement in air traffic levels as a result of the easing of travel restrictions and the progress of vaccinations.

Overall, however, total revenues reached over $5m during 2021, a 51 percent decrease compared to 2019, as the slow recovery of international flights prevented LATAM’s return to pre-pandemic levels of capacity.

“We hope that our operations continue to recover to reach the magnitudes that we knew in 2019,” said Roberto Alvo, chief executive of LATAM Airline Group. “We cannot lose sight of the fact that we find ourselves in an uncertain time, not only due to the effects of new COVID-19 variants, but now also due to the tension of a warlike conflict that has the world on alert and that has an impact on the price of oil.”

LATAM Airlines is targeting to emerge from Chapter 11 during the second half of 2022.

Fraser Tennant