Latam Air Creditors Slam Bankruptcy Plan, Tout Azul Offer
(Bloomberg) -- Latam Airlines Group SA’s official low-ranking creditor group is unhappy with the Chilean carrier’s bankruptcy exit proposal, arguing a sale to rival Azul SA could leave its members much better off.
In court papers filed Wednesday, Santiago-based Latam’s unsecured creditor committee said the airline’s current reorganization plan is so unfair that it can’t win court approval. It flouts U.S. bankruptcy rules by favoring some evenly-ranked creditors over others and giving value to shareholders that don’t deserve it, lawyers for the group wrote.
“Rather than use the past eighteen months to negotiate and prepare a value-maximizing plan that treats all constituents fairly and in accordance with the Bankruptcy Code, the Debtors have used their exclusive opportunity to negotiate an unconfirmable insider deal at the expense of non-preferred creditors,” lawyers from the Dechert firm wrote on behalf of unsecured creditors.
Under the current proposal, Latam locked arms with key shareholders -- Delta Air Lines Inc., Qatar Airways and Chile’s Cueto family -- and a major creditor group on a deal that would raise about $5 billion and slash its debt load. Sixth Street Partners, Sculptor Capital and SVPGlobal are leading the creditor group that has agreed to backstop the plan.
The plan would result in creditors taking control of the company, while existing shareholders could retain a sizable ownership stake. That’s unusual in U.S. bankruptcy -- stockholders are last in line to be repaid -- but Latam’s deal would smooth over potentially thorny Chilean securities law issues.
Latam’s low-ranking creditor group is urging the company to consider alternative plans, like Azul’s offer to buy the company. A term sheet submitted to Latam from Azul would offer some creditors recoveries three times as high as those expected under Latam’s current plan, the group said.
$13 Billion Offer
“The court need not speculate as to what distributions to creditors would be in such a scenario, because a strategic acquirer -- Azul -- has already offered to purchase the Debtors’ businesses for $13 billion,” the creditor group said in its pleadings.
Latam Chief Executive Officer Roberto Alvo has said Azul’s proposal was “hypothetical” and impossible to bring forward. Representatives for Latam didn’t immediately provide a comment on the creditor committee’s most recent pleadings.
U.S. bankruptcy rules give troubled companies the exclusive right to pitch their own restructuring plans, which creditors then vote on. That dynamic limits Azul and dissenting creditors’ options for advancing competing plans, but they can try to persuade Latam’s bankruptcy judge to strike down the deal or open the case to alternative offers.
The case is LATAM Airlines Group SA et al., 20-11254, U.S. Bankruptcy Court for the Southern District of New York (Manhattan). To view the docket on Bloomberg Law, click here.
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