Home / Companies / News /  Latam Airlines nears chapter 11 deal with creditors amid rival’s merger push

Latam Airlines Group SA is close to launching a chapter 11 exit strategy backed by some unsecured creditors as it vies to fend off a competitor’s efforts to build support for a proposed business combination, people familiar with the matter said.

The Chilean airline is nearing a restructuring deal with large unsecured creditors and certain shareholders that revolves around an equity sale to recapitalize the business and ease an exit from bankruptcy, according to the people familiar with the matter.

Latam’s plan, if approved, would also fend off merger overtures from Brazilian peer Azul Linhas Aéreas Brasileiras SA, which has been pushing to combine the two companies. Azul isn’t giving up and has been seeking buy-in from Latam bondholders for an alternative restructuring premised on a tie-up, people familiar with the matter said.

A Latam representative said the company is looking to file its reorganization plan, developed with its key stakeholders, by Friday.

“We believe it represents a strong, equitable path forward that will position Latam for success well into the future," the Latam representative said.

Any restructuring plan requires approval from the U.S. Bankruptcy Court in New York, where Latam sought protection last year as the spread of Covid-19 grounded flights across Latin America and the world.

Latam has been negotiating the planned equity raise with an unsecured creditor group led by Sixth Street Partners, SVPGlobal and Sculptor Capital Management that holds in excess of $4 billion in claims against the company, people familiar with the matter said.

A representative for the unsecured creditor group, the largest in Latam’s bankruptcy case, declined to comment. Negotiations, which include shareholders and other creditors, are ongoing and deal terms could change, the people familiar said.

Azul meanwhile has been trying to build momentum for a competing restructuring involving a combination with Latam, some of the people said. Some Latam bondholders have signaled they are amenable to Azul’s strategy and possibly investing in the combined business, the people said.

The filing of Latam’s chapter 11 plan will keep the airline in exclusive control of its chapter 11 proceedings and preclude any competing plan from being put forth without authorization from the bankruptcy court.

An Azul spokesperson said it couldn’t comment on current discussions but reiterated comments from a quarterly earnings call earlier this month that Azul believes a combination with Latam “is in the best interest of consumers, creditors and shareholders."

“We are engaged in the process and look forward to future developments," the Azul spokesperson said.

Latam has rejected a merger plan over concerns it wouldn’t pass muster with antitrust authorities or garner the necessary support from shareholders, which include the Cueto family, Delta Air Lines Inc. and Qatar Airways, people familiar with the matter said. In court filings, Latam has argued that under Chilean law the company can’t sell equity in a restructuring without the consent of a majority of shareholders.

Azul’s efforts depend on convincing creditors that its deal offers a better value proposition than bringing Latam out of chapter 11 as a stand-alone company, people familiar with the matter said. Azul and some Latam bondholders have been drafting a possible cooperation agreement, some of the people said. A lawyer representing a committee of Latam bondholders declined to comment.

Latam filed for chapter 11 in the early months of Covid-19’s global spread as travel restrictions, stay-at-home orders and fear of contagion devastated airline revenue world-wide and sent carriers scrambling for state-led bailouts and creditor protection.


This story has been published from a wire agency feed without modifications to the text

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