LATAM Airline's Brazil unit included in bankruptcy protection filing

LATAM Airline's Brazil unit included in bankruptcy protection filing

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Chile's LATAM Airlines said on Thursday it has presented a second debtor-in-possession (DIP) financing proposal worth $1.3 billion to a New York court and announced its Brazilian affiliate would be incorporated into its ongoing Chapter 11 bankruptcy process.

US investment manager Oaktree Capital Management and its affiliates committed to provide the DIP financing, known as Tranche A, that LATAM presented to the Court of the Southern District of New York on Thursday, according to a statement from LATAM.

Tranche A is the second DIP financing obtained by the airline and adds to the $900 million Tranche C obtained from shareholders, the Cueto and Amaro families and Qatar Airways, when it filed for Chapter 11 in May.

The Cueto family owns 21.5% of LATAM, while the Amaro family has 1.98% and Qatar Airways has a 10% stake.

The DIP financing from the airline’s main shareholders was "essential [in] sparking an interest and commitment from investors that we did not have a month ago," CEO Roberto Alvo said in the statement.

LATAM noted in the statement that Tranche C also includes an upsize of $250 million that will enable other shareholders in Chile to participate after it is approved by the court.

The proposal is expected to be "reviewed and approved" by the court in the coming days, the statement said.

The Chapter 11 filing in May originally covered LATAM's affiliates in Chile, Colombia, Ecuador and the US, but did not cover its businesses in Argentina, Brazil and Paraguay.

LATAM said it has since incorporated its Brazilian affiliate into the Chapter 11 agreement in what it described as "a natural step" in light of the continuing COVID-19 pandemic and one that will "facilitate access to proposed DIP (debtor-in-possession) financing."

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.

"Combined, Tranches A and C meet LATAM's financing requirements in the context of the COVID-19 crisis and, as a result, it is hoped that financial support will not be required from governments," stated LATAM.

LATAM alongside Azul and Gol signed on to receive emergency funding from a group of lenders led by the Brazilian national development bank BNDES, CEO Gustavo Montezano said on Friday.

Azul CEO John Rodgerson previously said during an earnings call that BNDES had set aside BRL4 billion to support the three carriers, which have all lost revenues from travel restrictions and grounded flights during the coronavirus pandemic.

LATAM said in the statement that it will continue negotiations with BNDES.

Earlier this month, Mexican airline Aeroméxico began talks to obtain DIP financing after filing for Chapter 11 in the US becoming the third airline to file after Colombia's Avianca and LATAM Airlines.