Last Friday, September 18, the US bankruptcy court rescued LATAM Airlines from its economic affectation due to the suspension of flights by Covid-19, approving financing of $2.45 billion. The airline was already suffering from the fall in the value of its shares by more than 80%, so if the financing had not been approved, it might have been forced to close down.
Funding approval
The financing is the first stage of the process that LATAM Airlines had already started last May when it filed for Chapter 11 of the US bankruptcy law. This allowed, in the face of the Covid pandemic19 and its consequent economic paralysis, that the airline will seek a restructuring, temporarily pausing payment to its creditors. If you want to know more about this law you can read our previous article entitled What is the US bankruptcy law that Avianca and Latam have filed for?
LATAM Airlines had already submitted a first financing plan the second week of September to the U.S. Bankruptcy Court in New York City, requesting $2 billion in financing. Although this first request involved a smaller amount, it was rejected; due to LATAM Airlines’ proposal, which consisted of an exchange of the amount of the debt for shares in the company.
In the newly approved application, the airline ruled out debt-to-equity convertibility, however, it increased the financing by a final amount of US$2.45 billion, including the participation of new financiers. In addition to the US investment fund Oaktree Capital Management, the new financiers include Knighthead Capital and Qatar Airways, among others.
The request presented on Thursday, September 17, was approved the following day by bankruptcy judge James Garrity in the New York court, the same judge who a week earlier had rejected the first proposal of LATAM Airlines, because he considered that its initial proposal gave unfair treatment to the same shareholders of the company.
With this support, LATAM Airlines joins several companies that have sought funding to avoid bankruptcy, you can read two similar cases in Europe in the following articles: The Virgin Atlantic airline agrees to a “private” rescue plan for 1.2 billion pounds and The German government is studying the possibility of rescuing Lufthansa.
A challenge to take on
Despite the receipt of the financing, and that this even meant a recovery of LATAM Airlines’ shares since Thursday morning, when the new financing request was announced, and ending on Friday, September 18 with a recovery of 5.49%, the airline is still not recovered, as its shares still do not earn half of their value prior to the Covid-19 contingency. It will take a long time for this to happen, especially considering that normal operations will not be able to begin in the medium term due to health measures and the uncertainty of flight demand by the market.
What do you think about this issue? What other measures do you think are necessary to support airlines at risk of bankruptcy?
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Image by Alexandro Dias via Flickr under Creative Commons license.
