They are in the process of raising funds at Latam Airlines, under the debtor procedure in possession of Chapter 11 bankruptcy in the United States.
A few days ago they announced that they formalized before the Court of the Southern District of New York the first tranche, the C, of the proposal for financing DIP (Debtor in Possession for its acronym in English). The proposal will be complemented by two other sections, A and B.
Tranche C corresponds to US $ 900 million pledged by Qatar Airways shareholders (US $ 600 million) and Cueto and Amaro families (US $ 300 million) on May 26.
The proposal also contemplates an extension of tranche C for a total amount of US $ 250 million, so that other shareholders can participate, so this process is still ongoing and its financial advisers are working to obtain these additional amounts. This is expected to be approved by the judge handling the case by the end of the month.
The conditions for investors in this section C contemplate a fee of 2.5%, an interest rate of 14.5% (paid at the end of the process) and a profitability of 47%, if they decide to opt for the way to convert into shares the liability. If so, among other conditions, they must remain at least 15 months in the property.
This is the section in which the current shareholders Qatar Airways and the Cueto family are already engaged.
These same shareholders, together with Delta Airlines, owner of 20% of the airline, signed a support contract, in which they are obliged to remain as shareholders and to approve the capital increase out of the Chapter 11 process.
Until then, at most they would raise US $ 1,150 million. They would have to obtain another US $ 1 billion to achieve what the firm wanted, and about US $ 800 million to consider the process successful.
To do this, they created tranche A and B in this DIP financing process aimed at shareholders or investors.
The first one does not have the capital option, although they do have a payment preference over tranche C. The conditions under which the loan could be obtained are not yet established. For now, LarrainVial is also in talks with different financial entities, such as investment funds and banks. A syndicated operation is not ruled out. That is the priority for the company these days.
But there is a third alternative to raise resources. One that has been more elusive: governments. And they are governments, in the plural, since this company has a presence in various markets in the region. Thus, section B was reserved for possible state aid that may arise.
It is that although in the statement last Sunday the firm realized that it did not have these funds, in the face of a longer health crisis it may make it necessary to resort to alternative B.
The most advanced conversations are in Brazil, a country with which contributions have been analyzed through the state bank Bndes. In Chile there has been no concrete progress.
The experience of European airlines is not encouraging in terms of recovery speed. While deconfusion has begun, long-haul flights are virtually non-existent. Domestic flights have rebounded, but fail to account for more than 30% of normal operation. Today, Latam operates at around 5%, with an occupation of close to 60%, and it is expected to gradually increase, although the brake on mining trips to avoid the spread of contagion limits that intention.
Thus, unless a vaccine is produced in the short term, prospects point to a slow recovery in transport capacity. That horizon is only seen for 2024.
Therefore, given that 86% of the world’s airlines have received state contributions, it is not unlikely that section B will end up being occupied. P
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