How To Avoid Dilution In Aeromexico? |

Today we’ll answer how to avoid dilution in Aeromexico (according to the carrier)? The airline has just announced a public tender offer to be launched by a third party. This offer will give existing shareholders an option to withdraw from the current capital stock. Nonetheless, the announcement sent Aeromexico's publicly trade price crash from 3.89 pesos per share to less than 1.80 in one day. Changes in Aeromexico Aeromexico’s Chapter 11 restructuring will allow the company to raise approximately US$720 million of new capital and US$762.5 million of new debt, in addition to the equitization of a large portion of the airline’s recognized debt. These movements will put the airline in a robust financial position and enough liquidity to emerging in the best conditions. Nonetheless, the Chapter 11 bankruptcy will impact Aeromexico’s current shareholders. They will inevitably dilute, as will also happen with Avianca and LATAM’s shareholders. Therefore, a third party unrelated to Aeromexico will make a voluntary tender offer in Mexico. The objective is to give existing shareholders the option to withdraw and avoid substantial dilution once the Plan is implemented. Aeromexico added, “The Offering will be launched prior to Aeroméxico's general shareholders’ meeting, pending to be called, at which it is expected that several corporate actions required to implement and effectuate the Plan will be approved, which will include, among other resolutions to be submitted to the approval of the shareholders, a capital increase and the equitization of debt and new capital contributions.” This offering will be made at 1 Mexican cent for each Mexican peso, for each of Aeromexico’s outstanding shares. Delta, not involved Delta announced equity stake changes in LATAM, Aeromexico, and Virgin Atlantic earlier this week. Therefore, Delta won’t be participating in Aeromexico’s offering. There will be a maximum of 331,480,713 shares expected to be acquired at Aeromexico’s public tender offer, or up to 49% of the capital stock. Instead, Delta is investing up to US$1.2 billion in the three carriers. Delta Air Lines expects a reduction in Aeromexico’s ownership, from 49% to 20%. The US carrier has acquired US$185 million (approximately 23%) of the Tranche 2 DIP Loans of US$1 billion. In addition to this commitment, Delta will acquire US$100 million of New Shares. Delta shall also be required to convert its Tranche 2 Loans to New Shares, according to Aeromexico’s exit financing motion. “As a result, the Chapter 11 Plan shall reflect that Delta shall receive 20.0% of all New Shares issued under the Chapter 11 Plan,” said Aeromexico. Aeromexico’s new shareholding participation Following Chapter 11, Aeromexico’s shareholding participation will change significantly. Shareholders holding future new shares once the Plan becomes effective and the consequent dilution of the Company's existing capital stock occurs, will have the assurance of their expected new shareholding participation under the terms of the Plan. According to Aeromexico, the new shareholders will be distributed like this: 4.10% A group of strategic Mexican shareholders 22.38% Apollo, Aeromexico’s DIP Financing lender. The company gave a DIP Financing comprised of two Tranches, one for US$200 million and the other for US$800 million. 20.00% Delta Air Lines The remaining shares are distributed among new investors and creditors that capitalize their recognized claims. The US bankruptcy court recently approved Aeromexico’s Plan, which has been public since December 10, 2021. Aeromexico expects to exit Chapter 11 early next year. The bottom line Despite Aeromexico's best efforts to avoid dilution, it is not working. Just today, the stock price fell by nearly 80% and at one point was under a peso. Moreover, if we look at the historic trend, Aeromexico's stock price has done nothing but go down since 2017 when it had its maximum price of 46 Mexican pesos per share.

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