Avianca Seeking $1.2 Billion USD Debtor In Possession Financing During Bankruptcy
Colombian airline Avianca, currently in Chapter 11 bankruptcy reorganization proceedings in US Federal Court has announced that it has been working with its advisors, led by investment bank Seabury Securities LLC to put in place a DIP (Debtor In Possession) financing structure.
Debtor in Possession financing under US law allows a firm in Chapter 11 bankruptcy to borrow money under strict conditions that subordinate existing debt and claims, with the goal of allowing the firm to emerge from bankruptcy as an operating business, and existing creditors to receive more than they otherwise would should the firm be liquidated.
Avianca’s proposed DIP financing structure consists of a Tranche A senior loan and a Tranche B subordinated loan, under which the airline seeks to obtain a total of approximately $1.2 billion USD of new funds ($900 million USD of Tranche A and $316 million of Tranche B) excluding any rollups of existing debt and purchase consideration. Total DIP facilities inclusive of rollup consideration will be $2.0 billion, consisting of a $1.3 billion Tranche A and a $700 million Tranche B. Both tranches will be secured ratably by a lien on all available collateral, with the Tranche B subordinated in right of repayment to the Tranche A.
Avianca says that it has now reached key agreements, subject to definitive documentation, the requisite consents and approvals from the relevant entities, U.S. Bankruptcy Court approval and other customary conditions, with various parties that are providing substantial funding towards such DIP loans. These agreements will allow the airline to offer prospective lenders a significantly enhanced collateral pool of assets to secure all of the DIP loans.
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Goldman Sachs Lending Partners LLC and JPMorgan Chase Bank, N.A. have been engaged by Avianca subject to U.S. Bankruptcy Court approval, to serve as co-lead arrangers and joint physical bookrunners of the Tranche A DIP Loans. The providers of this financing may include certain of Avianca’s existing lenders, other prospective third-party lenders, and possibly the government of Colombia. Additional information about the potential financing will be posted on Avianca’s website.
Key DIP Agreements to Date
The three key agreements that have been reached, as integral elements of the securing the $1.2 billion of new DIP financing, are as follows:
- Avianca’s Tranche B DIP financing will include funding from its existing stakeholder lenders as well as new investors consisting of $316 million of new money financing and a rollup of approximately $384 million of secured convertible debt issued in December 2019 and January 2020. The property that currently secures the existing Stakeholder Facility – Avianca’s 70% equity interest in LifeMiles, as well as certain Colombian Peso-denominated credit card receivables – will now be available to secure the DIP financing.
- Avianca also has reached an agreement in principle with an ad hoc group of holders of Avianca’s 2023 senior secured notes; this agreement will be memorialized in a restructuring support agreement (RSA) between Avianca and holders of a majority of the notes. Pursuant to the RSA, all holders of the notes will have an opportunity to provide up to $250 million of new money commitments to the Tranche A DIP, with certain holders of notes agreeing to backstop $200 million. The RSA provides that holders of notes who become a party to the RSA will have the opportunity to roll up a portion of their notes into the Tranche A DIP, with the aggregate amount of rollup equal to $220 million of the Tranche A DIP. The RSA also provides for the collateral presently pledged to secure the notes, including Avianca’s trademarks, certain freighter aircraft and Avianca’s residual equity interest in certain pools of aircraft, to be pledged on a senior secured priming basis as additional collateral to secure the DIP loans.
- In addition, Avianca has reached an agreement in principle with AI Loyalty (Cayman) Limited, holder of a 30% ownership stake in Avianca’s loyalty company, LifeMiles Ltd., to acquire 19.9% of LifeMiles equity, currently held by AI Loyalty for a combination of cash and Tranche A DIP loans and also to receive a call option to acquire AI Loyalty’s remaining equity stake in LifeMiles for cash. As a result of this agreement, Avianca will own 89.9% of LifeMiles upon the closing of the transaction, with a path toward ultimately buying back 100% of LifeMiles. These incremental stakes in LifeMiles will also be available as collateral to secure the DIP facility.
All monetary figures are US Dollars in this article.
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