As reported by Finance Colombia and elsewhere, Avianca (OTCMKTS: AVHOQ, BVC: PFAVH) directors and creditors have recently taken a significant stake in troubled Chilean low-cost carrier Sky Airlines, while bankrupt Avianca seeks to emerge from Chapter 11 reorganization in the United States federal court system, and reduces its service offering to mimic its low-cost rivals.
Sources told Chilean daily El Mercurio that private equity firm Caoba Capital, backing both Sky and Avianca that it was “obvious” the shareholders would seek synergies between the two South American airlines, and Elliot Management has is also backing both airlines along with Caoba. Local and industry journals report that Sky Airlines President and shareholder Holger Paulmann would lead the merged company, becoming the alpha lead in the binational partnership.
In response to all the buzz, Avianca filed a Form 6-K with the United States Securities and Exchange Commission on October 4th, reminding interested parties that current shareholders will be wiped out by the proposed reorganization plan in favor of DIP creditors, who will become the new shareholders; but the firm also said that Avianca has not participated in any negotiations with Sky.
According to Colombian daily La República, Caoba Capital and Elliot Management are set to control 70% of Avianca & 40% of Sky.
However, Avianca company management is not necessarily privy to negotiations or decisions taken by outside shareholders, and it would behoove those DIP (Debtor In Possession) shareholders to keep preliminary negotiations outside of the company. Were the company management at this stage directly involved in any merger talks, it could complicate bankruptcy proceedings, but shareholders are free to do and say as they wish.
Avianca denied company-to-company negotiations but did not flatly deny talks.
“Avianca has no knowledge of any future decisions the Tranche B investors may take, as potential controlling shareholders of the Company, once the Plan is confirmed,” the company said in its 6-K filing, going on to clarify:
“Avianca has no knowledge of any investment of its Tranche B investors in Sky, nor the terms and conditions of any negotiation that any of the Tranche B investors may have pursued with Sky or its shareholders.”
Current shareholders, likely to be wiped out by any agreement, have until October 19 to object to the reorganization plan, and votes may be submitted to approve or reject the reorganization plan up until October 15, both 4pm Eastern time. The court will hold a hearing October 26 at 10am to consider approval of the reorganization plan.
Court filings and other documents related to the Chapter 11 process in the US are available at www.kccllc.net/avianca.