Photo: LATAM.
On Friday, November 26, LATAM Airlines Group took a step forward towards exiting the Chapter 11 bankruptcy process. The carrier filed in extremis the plan, outlining the financial highlights that will allow it to recover fully from the COVID-19 pandemic and grow. Here’s LATAM’s Plan of Reorganization.
It has been a long ride so far. LATAM filed for Chapter 11 on May 26, 2020, following the heavy impact of the COVID-19 pandemic. As of December 31, 2019, LATAM flew to 145 destinations in 26 countries, including domestic flights in Brazil, Chile, Ecuador, and Peru. It was the only Latin American carrier to operate internationally in every inhabited continent. Nonetheless, like many other airlines around the world, LATAM deeply felt the impact of the crisis. Despite its solid financial structure, it had to find a way to reorganize its debt.
LATAM’s Chapter 11 plan has allowed the carrier to adapt better to the currently harsh environment. But it didn’t come without difficulties. The airline presented its Plan of Reorganization in extremis on the last day at nearly the final hour available to do it with exclusivity. Had it taken one more day, other creditors, and crucially other interested parties (like Azul), might have been able to present an offer to LATAM’s stakeholders.
With Friday’s Plan, LATAM keeps the exclusivity to going forward with the bankruptcy process. LATAM aims to exit Chapter 11 during 2022’s first half.
What does the process include?
The Plan reflects the path forward for the group to exit Chapter 11 in compliance with the US and Chile’s laws. Additionally, it has a Restructuring Support Agreement with LATAM’s largest unsecured creditor group, the Parent Ad Hoc Group.
LATAM’s plan proposes the infusion of US$8.19 billion into the group. The money would enter through a mix of new equity, convertible notes, debt and will enable LATAM’s exit from Chapter 11 with appropriate capitalization to effectuate its business plan. Once LATAM emerges from the bankruptcy process, the airline is expected to have total debt of approximately US$7.26 billion and liquidity of around US$2.67 billion. According to LATAM, that’s a conservative debt load and appropriate liquidity in a period of continued uncertainty.
Roberto Alvo, LATAM’s CEO, said: “The infusion of significant new capital into our business is a testament to their support and belief in our long-term prospects.”
Specific outlining of the Plan
Once the Court confirms LATAM’s plan in 2022’s first quarter, the airline will launch a US$800 million common equity rights offering. There will be three distinct classes of convertible notes issued by the airline, all of which will be preemptively offered to shareholders of LATAM.
Additionally, LATAM will raise a US$500 million new revolving credit facility and approximatelyUS$2.25 billion in total new money debt financing.
Fleet
Before Chapter 11, LATAM had a fleet of 340 aircraft, including several Boeing 767 freighter units. Since LATAM’s filing, the airline “has evaluated and redefined its fleet needs for the coming years and entered into negotiations with its fleet lessors in order to rightsize the fleet and obtain improved conditions.”
As of September 30, 2021, LATAM had 302 aircraft. During the bankruptcy process, it has returned 42 planes, incorporated 16 new units, retired one plane, and reclassified 11 B767s as available for sale.
