LATAM lands DIP financing
May 27, 2020
Chilean airlines gets $900 mln from three shareholders as it files for bankruptcy protection in a US court
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LATAM Airlines said on Tuesday that it secured $900 million in debtor-in-possession (DIP) financing from three shareholders, the Cueto and Amaro families and Qatar Airways, after filing for bankruptcy protection in a US court.
"To the extent permitted by law, the group would welcome other shareholders interested in participating in this process to provide additional financing," the Santiago-based airline said in a statement, adding that it has roughly $1.3 billion in cash on hand.
The Cueto family owns 21.5% of LATAM, while the Amaro family has 1.98% and Qatar Airways has 10%, according to the airline's year-end financial results.
Delta Air Lines agreed to buy a 20% stake in LATAM for $1.94 billion in September last year, but it has not signed on to the DIP financing.
LATAM was a "healthy and profitable airline group" at the start of the coronavirus pandemic, but a collapse in global demand brought air travel to a standstill and possibly changed the industry for the foreseeable future, CEO Roberto Alvo said in the statement. Alvo replaced Enrique Cueto at the helm of LATAM in April this year.
The Chapter 11 filing covers LATAM's affiliates in Chile, Colombia, Ecuador and the United States, but not its businesses in Argentina, Brazil and Paraguay, the airline said. LATAM will continue to operate passenger and cargo flights "as conditions permit" during the bankruptcy proceedings, it added.
LATAM also said it is in negotiations for additional financing from the governments of Brazil, Chile, Colombia and Peru. It is expected to share up to BRL4 billion ($743 million) in emergency funding from Brazil's national development bank BNDES with two other airlines in the country, Azul and Gol.
Fitch Ratings downgraded LATAM to D from CC on Tuesday, saying it will reassess the airline's ratings after the bankruptcy proceedings.
As the coronavirus outbreak spread to Latin America, LATAM started putting off lease payments in mid-March and cut flights by 95% in April and May, according to Fitch.
"The recovery of capacity utilization levels remains uncertain as the virus spreads and more restrictive measures are imposed that stifle demand," Fitch said.
FTI Consulting is LATAM's financial adviser on the bankruptcy process with PJT Partners as investment banker and Cleary Gottlieb and Claro & Cia. as legal advisers.