Avianca Holdings has confirmed that its majority-shareholder, Synergy Aerospace, has breached certain provisions of a loan agreement with United Continental Holdings.
In order to secure a USD456 million loan from the US-based carrier holding back in November last year, Synergy Aerospace transferred its entire 78.1% stake (515,999,999 shares) in Avianca Holdings into BRW Aviation LLC, a Delaware limited liability company which is also a wholly-owned subsidiary of Synergy, to act as collateral among other assets. Kingsland Holdings, the parent firm of TACA International Airlines, an El Salvador-based Central American airline that was merged with Avianca in 2010, pledged its 21.9% stake in Avianca Holdings as well.
The terms of the loan were also subject to several covenants benchmarked against Avianca Holdings' financial performance. Among those are that its leverage ratio (net debt to adjusted EBITDAR earnings) must not exceed 5.9:1; Avianca Holdings' minimum liquidity level must not go below USD400 million (or USD300 million provided BRW complies with certain grace provisions); its overall debt pile must not exceed USD5.88 billion and that cumulative Avianca Holdings’ capital expenditures must not exceed specified amounts at certain points in time (including USD659 million in the year ended December 31, 2018).
However, in an SEC filing, Avianca Holdings said BRW had informed it that BRW was now in breach of at least one covenant under the United Loan, consisting of its failure to comply with a collateral coverage ratio set forth in the agreement.
"Any such breach constitutes an event of the default under the United Loan," Avianca Holdings said. "The existence of one or more events of default under the United Loan entitles United or its collateral agent to take enforcement action in relation to 78.1% of our common shares, which could result in United or its collateral agent taking steps to enforce the share pledge, including ultimately taking control of our company or selling such control to a third party, which in turn could constitute an event of default under several of our financing agreements, including material bilateral and multi-lender credit facilities and substantially all of our ECA financings covering our aircraft."
As of April 26, Avianca Holdings said that United had not yet provided a waiver of all existing defaults under the United Loan and there could be no assurances that, if a new waiver is requested by BRW, it would be granted.
For its part, United Continental Holdings has said in a statement that it has not yet taken any enforcement action regarding its Avianca Call option.
Should it do so, Avianca Holdings said this would have a number of consequences. Among them are that Advent International may push Avianca Holdings to purchase Advent’s 30% stake in Avianca's LifeMiles frequent flyer programme. In addition, the US firm taking over Avianca Holdings would also impact a number of its subsidiary carriers' local ownership quotas, a key requirement in some bilateral and multilateral air service agreements.
As it stands, Avianca Holdings says it has now begun the process of obtaining consent from its lenders (bilateral and multi-lender credit facilities as well as export credit agencies) in order to add United as a permitted holder under each agreement's relevant change of control provisions. If agreed to to, this would ensure that if United took ownership or control of Avianca Holdings, this would not constitute a change of control under such bilateral and multi-lender credit facilities and ECA financings.
