When the covid-19 pandemic grounded the global travel industry, the subsequent financial strain caused Latin American aviation companies to drop off the radar one by one. Regional aviation group LATAM Airlines obtained a US$2.45 billion DIP financing from a group of international shareholders, creditors and lenders several months after the airline filed for Chapter 11 bankruptcy proceedings in New York in May 2020. This lifeline wins the banking & finance category of our Deal of the Year Awards.
Faced with a mounting debt pile of over US$18 billion, the company applied for the emergency funding to continue operating amid its restructuring and the ongoing covid-19 pandemic.
LATAM Airlines’ cross-border DIP transaction closed in over nine jurisdictions. The DIP loan was approved by the company’s international bondholders after fraught disputes between creditors and the company over the debt package waged on for months. Disagreements were passed back and forth between US bankruptcy judges for over three months before the billion-dollar deal was sealed last October. The final plan is thought to have saved the airline and its shareholders over half a billion US dollars in reorganisational costs.
LATAM first filed for bankruptcy at the US Bankruptcy Court for the Southern District of New York on 26 May last year, following in the footsteps of other carriers in the region. In the initial proceeding, the Chilean parent company – LATAM Airlines Group – was the lead debtor of the company’s 28 affiliates in Colombia, Chile, Ecuador and Peru, among others.
In May, LATAM shareholders Cueto Group, the Amaro family and Qatar Airways signed an agreement to provide a US$900 million tranche as part of an emergency DIP financing. The borrower also reached a deal with US lender Oaktree Capital Management to receive a further US$1.3 billion.
But a week later, LATAM’s creditors objected, claiming the US$2.45 billion DIP package was too expensive. Creditors also opposed giving DIP lenders the option to convert the US$900 million tranche into equity in the company at a 32% discount once LATAM had emerged from bankruptcy. Creditors claimed that it would allow the company’s shareholders to pocket millions of dollars in value at the expense of creditors guaranteeing the emergency bail-out. The complaint was followed by a three-day court hearing.
It led to a New York bankruptcy judge rejecting the initial DIP proposal on 10 September. Judge Garrity refused the package on the basis that it would unfairly lock creditors into company shares and tip the balance in LATAM’s favour in the case of another corporate reorganisation.
Just over a week after the judge’s decision, LATAM amended the terms of the loan in a second DIP filing. The new package was approved by the New York bankruptcy court on 18 September.
In the final deal, Oaktree agreed to lend US$1.125 billion (instead of the previously suggested US$1.3 billion). US lenders Knighthead and Jeffries Group provided another US$175 million, bringing that tranche to a total of US$1.3 billion. In the second tranche, Qatar Airways, the Cueto Group and the Eblen Group put up US$750 million, while Knighthead provided another US$150 million. LATAM agreed to obtain a further US$150 million from either new or existing shareholders.
Following months of talks, LATAM finally closed its US$2.45 billion DIP loan deal on 8 October last year.
Counsel to LATAM Airlines
In-house counsel – Juan Carlos Mencio
Brigard Urrutia
Cleary Gottlieb Steen & Hamilton LLP
Claro & Cía
Demarest Advogados
Rodrigo, Elías & Medrano Abogados
Philippi Prietocarrizosa Ferrero DU & Uría (Peru)
Pérez Bustamante & Ponce
Walkers
Counsel to the Eblen Group andthe Cueto Group
Baraona Fischer & Cía*
Counsel to Qatar Airways
Alston & Bird LLP
Carey
Mattos Filho, Veiga Filho, Marrey Jr e Quiroga Advogados
Houthoff
Harneys
Heka Law Firm
Estudio Olaechea
Posse Herrera Ruiz
Counsel to Oaktree Capital Management
White & Case LLP
Cescon, Barrieu, Flesch & Barreto Advogados
DLA Piper (Chile)
DLA Piper (Peru)
DLA Piper Martínez Beltrán
Robalino Law**
Counsel to Knighthead Capital Management
Quinn Emanuel Urquhart & Sullivan LLP
Hogan Lovells LLP
Counsel to Delta Air Lines
Davis Polk & Wardwell LLP
Barros & Errázuriz Abogados
Harneys
Counsel to AerCap Holdings, Aircastle Limited, The Bank of New York Mellon, Lufthansa Technik Aktiengesellschaft, Sindicato de Empresa de Pilotos de LATAM Airlines Group and Repsol
Dechert
Morales & Besa
Counsel to TMF Fiduperu
DLA Piper (Peru)
Counsel to TMF Brazil
Cescon, Barrieu, Flesch & Barreto Advogados
Counsel to TMF Ecuador
Flor & Hurtado
Counsel to Costa Verde
Wachtell Lipton Rosen & Katz
Harneys
Counsel to LATAM Brazil
Demarest Advogados
Machado Meyer Advogados
Counsel to Oaktree Capital Management
Ogier
Counsel to Knighthead
Dentons Larraín Rencoret (Chile)
Counsel to the Toesca fund
Jara Del Favero Abogados
*Since split into Baraona Marshall & Cía and Fischer y Cía. The partners who led the deal are now at Cuatrecasas (Chile) and Fischer y Cía.
**Then operating as Ferrere (Ecuador)
