United bid could put Avianca into default
May 22, 2019 |
Colombian airlines plans to revise contracts with European ECAs before it renegotiates 2020 bonds, source says
Avianca Holdings has started to revise its loan contracts with a clutch of European export credit agencies to avoid defaulting on $900m of loan guarantees if rival United Airlines seeks to acquire the business, LatinFinance has heard.
"If we assume United takes over Avianca, various contracts would be in default," said an Avianca executive.
To avoid default, "we want to include United as a permitted holder of ordinary shares in case they take control of Avianca," the executive added.
The European ECAs provided guarantees for $900m in loans to Avianca from several banks, he said, declining to name the lenders.
Avianca will likely conclude the talks with the ECAs from France, Germany, Italy and the United Kingdom in the next 60 days. After that, the Bogotá-based airline can start renegotiating $550m in 2020 bonds, he said.
United formed a partnership with Avianca in November last year and lent $456m to the Colombian airline's main shareholder, Synergy Aerospace, to pay off a loan from the US hedge fund Elliott Management. Synergy put up 515m shares in Avianca, or approximately half of the airline's share capital, as collateral for the loan.
"United can exercise its option at any time, but so far it has not said what it plans to do," the Avianca executive said.
According to a report from S&P Global, Synergy subsidiary BRW Aviation breached the covenants of the loan agreement when Oceanair Linhas Aéreas, doing business as Avianca Brasil, filed for bankruptcy in December last year.
United has declined to comment.