The LATAM Airlines Group has reached an agreement with certain creditors and shareholders to support its reorganisation plan within US Chapter 11 bankruptcy law, but Chilean creditors are up in arms over the deal.
The so-called “backstop commitment agreement” was secured on January 12, 2021, with the so-called “backstop parties” – the main shareholders supporting the restructuring support agreement (RSA), consisting of Delta Air Lines, Qatar Airways Investment (UK), the Cueto and Eblen Groups, and creditor Evercore.
However, Bloomberg reports that some Chilean creditors are objecting to the plan, as they estimate that their foreign counterparts will receive 100 cents for every dollar once the Chapter 11 process is complete, while they will receive only 20 cents. BancoEstado SA, the representative of the local bondholders, has asked LATAM to improve its terms. The local investors are threatening legal action if their demands are not met. They argue it would have been better for local creditors if LATAM had sought protection in Chilean courts, rather than in New York.
According to a filing with the US Securities Exchange Commission (SEC) and the Chilean Financial Market Commission (Comisión para el Mercado Financiero de Chile), under the agreement, and in accordance with the restructuring plan, LATAM will issue a USD800 million new common equity rights offering (ERO) open to all shareholders of the company. Delta Air Lines, Qatar Airways, Grupo Cueto, and Grupo Eblen, will backstop up to USD400 million of the new shares, but will not be entitled to any payment for the commitment. On the other hand, Evercore's unsecured creditors will receive 20% of shares in exchange for backing another USD400 million.
LATAM will also issue three classes (A, B, and C) of new convertible bonds. Of these, Class B will amount to USD1.3 billion and will be backed by Delta, Qatar Airways, Grupo Cueto, and Grupo Eblen. Class C will amount to USD6.8 billion, of which 50% of notes worth USD3.4 billion will be assigned to the Evercore Group.
The backstop parties have, in the aggregate, also committed to paying up to USD3.6 billion equalling a 20% cash payment to creditors.
As outlined earlier, the restructuring plan foresees the infusion of USD8.19 billion into the group through a mix of new equity, convertible notes, and debt, in terms of a restructuring support agreement (RSA) concluded in November 2021. This will give LATAM liquidity of USD2.67 billion and total debt of USD7.26 billion once it emerges from Chapter 11.
The company has submitted the backstop agreement to the US Bankruptcy Court for approval and a hearing is to be scheduled within 21 days.
The agreement contemplates September 30, 2022, as the deadline for the commitments assumed by shareholders and creditors within the reorganisation plan, although the date is subject to extensions in the event that new strains of COVID-19 delay the release of Chapter 11.
Meanwhile, in a separate statement to investors, LATAM reported its December traffic had recovered to 68.8% of pre-pandemic levels. Traffic is expected to recover to 72% in January 2022, totalling 1,300 domestic and international flights, compared to the same period in 2019.
