“In this strategic acquisition, we’re not just merging companies — we’re multiplying potential.”

– Marika Lulay, CEO of GFT

This marks the largest-ever acquisition for the Stuttgart, Germany-based firm in terms of headcount, and GFT stated in an announcement that its main objective was to expand its banking expertise, customer base, and geographical reach in Latin America.

The acquisition adds some 1,700 workers from Sophos to the more than 10,000 employed by GFT.

Sophos Solutions, which had revenues of more than 250 billion Colombian pesos in 2022 and maintains clients and partners that include “Colombia’s most relevant financial institutions,” per GFT, will add to the regional presence the company already has in Brazil, Mexico, Chile, Panama, and Costa Rica.

“In this strategic acquisition,” said GFT CEO Marika Lulay, “we’re not just merging companies — we’re multiplying potential. It is a logical continuation of our successful strategy for growth and profitability. All aspects of Sophos are highly valuable to us. From the new colleagues, new competencies. and new clients to the new partners for core banking solutions, such as Finastra.

“All this results in high traction for GFT in Latin America’s third-largest market, Colombia, plus exponential growth scope in the Americas and beyond,” added the chief executive.

According to Moody’s, the LifeMiles upgrade to B1 mainly reflects an improvement in its main shareholder, Avianca Holdings S.A.’s (NYSE: AVH, BVC:PFAVH) credit profile, reducing the risk of LifeMiles upstreaming extraordinary cash flows: either in the form of dividends, most likely financed with incremental debt or anticipated purchases of airline tickets. The recovery in Avianca’s liquidity follows a debt exchange concluded on December 31, 2019 and the availability of new credit facilities. Avianca’s credit profile remains weak, creating risks for LifeMiles’ credit quality and overall operation, says the ratings firm.

LifeMiles’ B1 rating also incorporates what Moody’s sees as its adequate liquidity and solid business model being the sole operator of Avianca’s frequent flyer program, its diversified and sticky base of commercial partners and co-brand credit card growth. Also reflected in the rating are the potential benefits to the company’s growth plan from improved economic dynamics in its largest markets. The corporate family rating is at the same level of the senior secured rating given that it is the only debt in the company’s capital structure.

The rating of the term loan takes into consideration its secured position within the capital structure of the company and the existence of a mandatory prepayment clause that obliges the use of a percentage of excess cash to pay down the term loan. This clause partly offsets the risk of cash leakage at LifeMiles before fulfilling its debt payment obligations. In addition, LifeMiles liquidity policy of maintaining a minimum cash balance equivalent to six months of rewards plus two quarters of debt service also mitigates this risk.

Avianca successfully completed the exchange of substantially all its senior notes due 2020 for new senior notes due 2023 easing its short-term liquidity pressure. In addition, Avianca was able to obtain new financing of $250 million USD from its shareholders (United Airlines Inc. (NASDAQ: UAL) and Kingsland Holdings Limited) and $125 million from Citadel Advisors LLC and a group of Latin American investors. At the same time, Avianca successfully renegotiated its operating and financial leases and extended their contract period, resulting in a more manageable capital structure.

The stable outlook reflects Moody’s view that the company will maintain adequate liquidity and credit metrics.

LifeMiles has a strong business model that leverages unrelated commercial partnerships (including co-branded credit card agreements with the largest banks in its core markets), but its single largest contributor to gross billings are miles sold to Avianca and its air partners, accounting for 32% of gross billings. As such, if Avianca were to face operating problems this would hamper LifeMile’s operation as customers’ interest in purchasing, adding or converting LifeMiles miles into Avianca’s air tickets would decline. Furthermore, if Avianca liquidity were to deteriorate, it may require LifeMiles to upstream dividends—most likely financed with debt as done in the past—resulting in higher leverage. Moody’s estimates that, absent additional indebtedness, LifeMiles’ adjusted debt/EBITDA would gradually decline from 2.8 times as of September 30, 2019 to below 2.5 times by year-end 2021.

Moody’s believes that LifeMiles has adequate liquidity. The company cash and cash equivalents of $65 million USD as of September 31, 2019 can cover 1.3x its short-term debt. In addition, LifeMiles benefits from a five-year $20 million committed revolving credit facility, which is currently undrawn. LifeMiles has posted negative free cash flow (defined as cash from operations minus dividends and capex) in 2017, 2018 and over the twelve months ended September 31, 2019 resulting from the high dividend payout.

LifeMiles’ largest contributors to gross billings are its financial partners, which include credit card co-brands (47%) and airlines (32%), Avianca being its largest customer, responsible for approximately 27% of gross billings. Around 80% of accrued miles are redeemed, with 90% being redeemed into air tickets. The 10% balance is redeemed into hotel nights, merchandise and other rewards. LifeMiles benefits from Avianca’s leading market position in Colombia and Central America.

LifeMiles has around 9.5 million members, more than 100 mileage agreements with financial institutions, and more than 723,000 co-branded credit cards. The number of members has grown steadily at a 9.9% CAGR in the last five years. LifeMiles’ largest market is Colombia where it generates 52% of its gross billings. It also operates in Peru, Costa Rica, El Salvador, Honduras, Guatemala, and the US; each of which contributes less than 10% to gross billings. Moody’s forecasts the Colombian economy will grow by 3.3% in 2020. Similarly, Moody’s estimates that, in Colombia, private consumption will grow by 3.5% in 2020 and 3.6% in 2021.

An upgrade is unlikely in the short term due to LifeMiles indirect exposure to Avianca’s operation and weak credit profile. Longer term, the ratings could be upgraded if the company were to maintain strong liquidity and credit metrics combined with an improvement in Avianca’s credit profile. An upgrade would also require strong ring-fencing provisions that limit cash upstream to shareholders, as well as the maintenance of adequate liquidity and profitability. Quantitatively, an upgrade would require LifeMiles to maintain its adjusted debt/EBITDA lower than 2.5 times on a sustained basis.

The ratings could be downgraded if the company’s profitability or credit metrics worsen, with an adjusted debt/EBITDA ratio remaining above 3.5:1. A deterioration in the company’s liquidity or profitability, or a change in the company’s financial policy leading to excessive cash distribution to shareholders can lead to a downgrade. Also, a weakening on Avianca’s credit profile or repetitive amendments to the loan agreement such that the mandatory prepayment provisions are waived or canceled, and excess cash flow is not used to pay down debt could result in a downgrade.

LifeMiles Ltd. is a coalition loyalty program and the sole operator of Avianca’s frequent flyer program. LifeMiles has 586 active commercial partnerships that allow its members to accrue and redeem miles for different products and services such as airline tickets, hotels, and rental cars among others. LifeMiles is 70% owned by Avianca Holdings S.A. and 30% owned by Advent International. LifeMiles reported gross billings of $331 million over the twelve months ended September 30, 2019.

Avianca successfully exchanged 88.1% of its 8.375% senior unsecured notes due 2020 for the new 8.375% senior secured notes due 2020 (mandatory conversion by Dec. 31, 2019). At the same time, Avianca received $250 million from shareholders Kingsland and United Airlines under a convertible secured loan, which triggers the exchange of $484.4 million of principal amount of its existing 8.375% senior secured notes due 2020 for an equivalent principal amount of 9% senior secured notes due 2023, which will occur on Dec. 31, 2019. Avianca also successfully completed all of its operating and financial lease renegotiations and extended its contract period, which will allow for a more manageable capital structure in the next 12 months.

The credit rating reflects Avianca’s still weak credit metrics, including debt to EBITDA remaining above 5.0x and funds from operations (FFO) to debt of about 10%. Avianca’s debt restructuring included the reorganization of all routes and frequencies and the slowing of its fleet renewal pace. S&P Global stated that it believes Avianca will focus on its most profitable routes by eliminating some of its regional flights and increasing its trans-border services through main hubs in Colombia, Costa Rica, El Salvador, and Peru. At the same time, the ratings agency expects more cautious capital expenditures for fleet renewals, which will alleviate pressure on Avianca’s cash generation.

About 65% of the company’s total operating costs are in dollars, primarily jet fuel, maintenance, airport fees, and some workforce expenses. In addition, Avianca’s 81.2% revenues are denominated in, or linked to, the dollars, and approximately 6.9% in Colombian pesos, mainly stemming from international route tickets in greenback denomination (USD). However, domestic ticket prices are also exposed to FX volatility. Standard & Poor’s stated that it considers that the company holds a natural hedge on its exposure to the dollar-denominated expenses.

In addition, weak liquidity will constrain the credit rating. For the next 12 months, S&P Global expects the company to maintain a ratio of 0.86x of expected cash sources to its uses, and their liquidity assessment also reflects Avianca’s likely inability to absorb low-probability adversities. However, the company received an additional $125 million under secured financing commitments, which is expected to alleviate pressure on the company’s funding, while it’s implementing its new operating and financial strategy.

• Standard & Poor’s raised its issuer credit and issue-level ratings on LifeMiles Ltd., a loyalty rewards program company, to ‘B+’ from ‘B-‘.
• The stable outlook on Avianca and LifeMiles reflects S&P Global’s view that they will maintain a solid operating and financial performance in the next 12 months. Standard & Poor’s also believes that Avianca’s capital structure will be manageable after debt restructuring.

Avianca owns 70% of LifeMiles, and Advent International (not rated) owns the remaining 30%. The upgrade of LifeMiles reflects that of its parent company, Avianca, given that LifeMiles is an insulated subsidiary. This reflects LifeMiles’ ‘bb-‘ stand-alone credit quality, constrained by the parent company’s credit quality.

LifeMiles generates only about 30% of gross billings from the sale of miles to its parent company under a 20-year exclusive agreement, while the remaining 70% come from long-term agreements with third parties and direct sales to members. Therefore, LifeMiles’ financial performance and funding prospects are independent from those of Avianca, so that even if other core entities encounter severe setbacks, LifeMiles’ relative strengths would remain mostly intact. Standard & Poor’s believes Avianca has a compelling economic incentive to preserve LifeMiles’ credit strength because the subsidiary is an important source of passenger traffic for the airline.

LifeMiles, Ltd. is a coalition loyalty, program and the sole operator of Avianca Airline’s frequent flyer program. LifeMiles has commercial partnerships that allow its members to accrue and redeem miles for different products and services such as airline tickets, hotels, and rental cars among others. For example, LifeMiles can be earned or redeemed at major Colombian retailers like Totto or hotel chain Estelar. LifeMiles is 70% owned by Avianca Holdings, S.A. and 30% owned by Advent International, that stake being taken in Avianca under previous management 4 years ago. LifeMiles reported gross billings of $352 million over the twelve months ended March 31, 2019.

Issuer: LifeMiles Ltd.

• • • Corporate Family Rating, Downgraded to B2 from Ba2

    • Senior Secured Bank Credit Facility, Downgraded to B2 from Ba2

    • Outlook, Changed To Negative From Stable

Ratings Rationale:

LifeMiles’ downgrade to B2 reflects its exposure to the weak credit profile and liquidity pressures of Avianca Holdings, S.A. (Avianca) which increases the risk of additional up streaming of cash flows to shareholders, either in the form of dividends, most likely financed with incremental debt, or anticipated purchases of airline tickets. LifeMiles’ B2 rating also incorporates its good liquidity and solid business model being the sole operator of Avianca’s frequent flyer program, its diversified and sticky base of commercial partners and co-brand credit card growth. Also reflected in the rating are the potential benefits to the company’s growth plan from improved economic dynamics in its largest markets.

The rating of the term loan takes into consideration its secured position within the capital structure of the company. The corporate family rating is at the same level of the senior secured rating given that it is the only debt in the company’s capital structure.

On July 22, Avianca announced it has temporarily deferred payments on some long-term leases and on principal payments on certain loans. On the same date, Avianca announced that it will commence as soon as possible an exchange offer for all of its $550 million senior notes due in May 2020.

LifeMiles has a strong business model that includes unrelated commercial partners and co-branded credit cards, but its single largest contributor to gross billings is Avianca, who together with its air partners, represent around 30% of gross billings. As such, if Avianca were to face operating problems this would hamper LifeMiles’ operation as customers’ interest in purchasing, adding or converting LifeMiles miles into Avianca’s air tickets would decline. Moreover, Avianca’s liquidity pressures may affect LifeMiles’ credit profile in the form of debt-financed dividend payments which will ultimately result in higher leverage. For example, in August 2017 LifeMiles obtained a $300 million amortizing term loan used to pay dividends, and in 2018 and 2019 the company up-sized its outstanding term loan by a total of $195 million which also up streamed to its shareholders. Still, the rated term loan has a mandatory prepayment clause that obliges the use of a percentage of excess cash to pay down the term loan. This clause partly offset the risk of cash leakage at LifeMiles before fulfilling its debt payment obligations. Furthermore, LifeMiles´ solid corporate governance framework, and particularly Advent International´s strong minority shareholder rights, also mitigate the risk of a potential cash leakage before payment of debt obligations. In addition, LifeMiles liquidity policy of maintaining a minimum cash balance equivalent to six months of rewards plus two quarters of debt service also mitigates this risk.

Moody’s estimates that, absent additional indebtedness, LifeMiles’ leverage (adj. debt/EBITDA) would gradually decline from 3.3 times as of March 31, 2019 to below 3.0 times by year-end 2020. Nonetheless, we believe LifeMiles could increase its indebtedness to finance dividend payments over the next few quarters.

LifeMiles has good liquidity. The company generates strong cash flow from operations and has limited capital spending requirements. It has minimum cash requirements to cover six months of rewards plus two quarters of debt service. In addition, LifeMiles benefits from a five-year $20 million committed revolving credit facility, which is currently undrawn.

LifeMiles’ largest contributors to gross billings are its financial partners (50%) and Avianca and air partners (30%), being Avianca its largest customer, responsible for approximately 26% of gross billings. Around 80% of accrued miles are redeemed, with 92% being redeemed into air tickets. The 8% balance is redeemed into non-ticket rewards. LifeMiles benefit from Avianca’s leading market position in Colombia and Central America.

LifeMiles has around nine million members, more than 100 agreements with financial institutions including co-branded credit cards and miles conversion agreements, and more than 700,000 active co-branded credit cards. The number of members has grown steadily at a 9.3% CAGR in the last five years.

LifeMiles’ largest market is Colombia where it generates 42% of its gross billings. It also sells miles in Peru, Costa Rica, El Salvador, Honduras, Guatemala, and the US; being the US the only contributor of more than 10% to gross billings. Moody’s forecasts the Colombian economy will grow by 3.3% in 2019 and 3.5% in 2020. Similarly, Moody’s estimates that, in Colombia, private consumption will grow at a 4% CAGR and retail sales will grow at a CAGR of 4.6% in 2019-2023.

The negative outlook reflects Moody’s view that the company’s credit quality may be negatively impacted by Avianca’s weak financial profile and that LifeMiles will be required to increase its dividend payout.

An upgrade would require an improvement in Avianca’s credit profile and maintaining ring-fencing provisions that limit cash upstream to shareholders, as well as the maintenance of adequate liquidity and profitability. Quantitatively, an upgrade would require LifeMiles to maintain its adjusted debt/EBITDA lower than 4.0 times on a sustained basis.

The ratings could be downgraded if the company’s profitability or credit metrics worsen, with adjusted debt/EBITDA remaining above 5.0 times. A deterioration in the company’s liquidity or profitability, or a change in the company’s financial policy leading to excessive cash distribution to shareholders can lead to a downgrade. Also, any further weakening on Avianca’s credit profile or repetitive amendments to the loan agreement such that the mandatory prepayment provisions are waived or canceled, and excess cash flow is not used to pay down debt could result in a downgrade.

The principal methodology used in these ratings was Business and Consumer Service Industry published in October 2016 and viewable on the Moody’s Rating Methodologies page.

United has given control of Avianca to Roberto Kriete’s Kingsland Holdings, just 3 years after Kriete sued United and Avianca to block them from negotiating a strategic partnership.

When contacted late Friday, a United Airlines spokesperson told Finance Colombia “While Avianca will remain an independent company and continue to run their own airline, United strongly supports their company-wide focus on transformation.  As we move forward with our Joint Business Agreement with Avianca and Copa, which is separate from today’s action, we will see better benefits for our customers and for our company if Avianca is a reliable, successful partner.”

Avianca’s Net Loss for 1Q 2019 was $ -67.9 million, compared to Net Income of $ 3.5 million in 1Q 2018. Net income margin for 1Q 2019 reached -5.9%. Operating income (EBIT) reached $18.5 million, with a 1.6% operating margin. Further, operating revenues reached $1.2 billion for the quarter; a 1.5% year-on-year decrease.

1. Germán Efromovich ousted by United from Avianca board after defaulting on a loan
2. Roberto Kriete appointed to lead Avianca Board by United with the mandate of finding new leadership
3. Efromovich’s Synergy Group defaulted on a $456 million USD loan made in November 2016
4. United has offered Avianca another $150 million in cash to support operations and stabilize finances. Kingsland may add another $100 million USD of liquidity.
5. Ousted from board: Germán Efromovich, (brother) José Efromovich, Rafael Alonso (former Airbus Latin America president)
6. Appointed to board: Roberto Kriete, Fabio Villegas, Juan Emilio Posada (both former Avianca CEOs)

The History

Germán Efromovich, purchased a financially troubled Avianca in 2004 but was able to successfully nurse the airline back to health, and Avianca enjoyed over a decade of growth and prosperity. Apparently some of his other businesses in petroleum, shipyards, and other airlines weren’t doing so well. Still, based on the success of Avianca, he was able to engineer a merger in 2010 with TACA. In the same year, Chilean rival LAN acquired Brasil based TAM to create LATAM, a South American juggernaut. Avianca combined with TACA would give it the scale to compete internationally.

Roberto Kriete Ávila, the 2^nd generation head of TACA agreed to the merger, leaving Kriete with a 22% stake in Avianca. Like many marriages, things that start out well can sour over time. Allegedly due to Efromovich seeking money for his other business interests, Kriete’s Kingsland Holdings sued Avianca in 2017 to block a deal Efromovich was negotiating with United Airlines which would have created a “strategic investment” but according to the lawsuit, contained a “side deal” with Efromovich’s Synergy Group.”

 “I don’t want to, and I am not going to sell Avianca—“Germán Efromovich in a December 2018 interview with Portafolio (Spanish)

The Kingsland suit was harsh in its criticism of Avianca, saying that Efromovich has “plundered” the airline and wanted to reach a deal with United solely for personal gain. “The United transaction diverts the vast majority of the consideration United is paying for a partnership with Avianca — a valuable asset that may provide United with an estimated annual profit in excess of $75 million USD — to Efromovich’s financially shaky affiliates,” stated the lawsuit, according to Bloomberg. Later that year, Kingsland Holdings and Avianca dropped lawsuits against one another and announced that they had agreed to negotiate privately, though a spokesperson for Kingsland Holdings warned: “If those negotiations cannot be completed successfully, the ‘without prejudice’ dismissal of the litigation allows the parties to bring new actions against each other addressing existing and future disputes.”

As it turns out, while Efromovich was negotiating another “strategic partnership” with United Airlines—he was negotiating another loan with United, but this time not for Avianca, but for his own Synergy Group. Synergy would put up its shares in Avianca as collateral in a holding company, BRW Aviation. If Synergy didn’t pay back the loan as agreed, United Airline would get those shares, which constitute a controlling interest in Avianca.

Avianca Chairman Germán Efromovich (left) and ex CEO Hernán Rincón. Rincon abruptly quit, and Efromovich was ousted as Avianca’s chairman of the board. (photo courtesy of Avianca)

A year earlier, Efromovich and Avianca’s board appointed Hernan Rincón as Avianca’s new CEO. Rincón had been the CEO of Microsoft Latin America before taking the position as the airline’s new leader. The company’s previous CEO was Fabio Villegas, a Colombian economist and politician.

In 2015, when Villegas was still under Efromovich at the airline, Avianca sold a 30% stake in its LifeMiles Loyalty program for $343.7 million USD. (Now, Villegas, along with Avianca former CEO Juan Emilio Posada have been appointed to Avianca’s board of directors after Efromovich’s ouster.)

While all this was happening, in 2017 one of Avianca’s major pilots’ unions, ACDAC, went on strike.  According to the union’s Jamie Hernandez, Avianca’s pilots made 30% to 70% less than Avianca’s pilots in other countries. Avianca Brasil and Avianca Argentina use the Avianca name but are not related to Avianca Colombia beyond licensing the name, and their joint control by Germán Efromovich.

The strike lasted almost 2 months, and was costly both for the airline and the union. The Colombian courts declared the strike illegal and ordered the pilots back to work. Avianca successfully fired some of the pilots who organized the strike, (including Jaime Hernandez) but the airline had lost millions, pilot morale was shattered, and pilots began to leave at a rate faster than Avianca could replace them. Throughout 2018 passengers suffered chaos as flight cancellations and delays were so bad that Avianca had to suspend ticket sales completely at one point.

United Airlines has agreements with its unions that forbid United from operating a foreign airline. There are also agreements in place, such as foreign ownership restrictions that would subject any direct takeover of Avianca by United to regulatory approval in multiple Latin American countries. However, United now seems to have indirect control as a majority shareholder. Right before the notice of default was publicized leading to United’s control of the airline, Rincón abruptly resigned as CEO, saying he wanted to “study astronomy.” This less than a week before it became public in an Avianca SEC filing that on April 10, BRW Aviation informed Avianca that it was in breach of the loan covenants with United. A material change in control such as this affects Avianca’s ability to obtain financing, which resulted in Avianca’s credit rating downgrade by Standard & Poor’s.

“In connection with the delivery by United of a notice of default to BRW, Kingsland Holdings Limited, AVH’s largest minority shareholder, has been granted independent authority to manage BRW, which remains the majority shareholder of AVH,” indicated United Airlines in an SEC filing. United has given control of Avianca to Roberto Kriete’s Kingsland Holdings, just 3 years after Kriete sued United and Avianca to block them from negotiating a strategic partnership.

What happens next?

Avianca’s future seems assured for now. It has a new strategic alliance with United Airlines and Copa Airlines, it has United Airlines as a patron, and is probably insulated by regulatory complications from a direct takeover by United. It has new liquidity, and will be unshackled from the drama of Avianca Brasil and Avianca Argentina. There will also be a chance to cleanse any bad blood between the unions, executives, and the previous leadership.

Now Kriete is in control of Avianca, with United’s blessings. Efromovich is having an extremely bad week, losing control of Avianca, and his Brazilian airline shut down by the government. Can the 69 year old industrialist engineer a comeback?

Who is Who

• Kingsland Holdings: Bahamas based investment vehicle of Roberto Kriete
• Roberto Kriete Ávila: El Salvadorean who inherited from his father and controlled TACA Airlines
• TACA Airlines (Transportes Aéreos de Centro America) was the 2nd largest Central American Airline behind Copa until Kriete agreed to a merger with Avianca in 2010, leaving Kriete with a 22% holding in Avianca. Kriete is also a co founder and board member of Mexican airline Volaris.
• Germán Efromovich: Bolivian businessman, son of Polish Nazi Holocaust survivors, naturalized citizen of Brasil and Colombia. Efromovich purchased Avianca in 2004 during a previous era of financial difficulty for the airline. Efromovich also controlled (or still controls; it is unclear) Estaleiro Ilha (EISA) a Brasilian shipbuilder that went bankrupt in 2015, and Estaleiro Mauá shipyard which closed in June of the same year but was able to reopen.
• José Efromovich: Germán Efromovich’s brother and business partner. José Efromovich operated Avianca Brasil and sat on Avianca Holding’s board of directors until last week.
• Synergy Group: Brasil based holding company of Germán Efromovich that held 78% of Avianca Holdings until they were placed into BRW Aviation as collateral for a loan to Synergy, Ostensibly to help save Efromovich’s other airlines such as Avianca Brasil and Avianca Argentina, which while controlled by Synergy and use the Avianca name, are not part of Avianca Holdings and are legally unrelated to the Colombian airline.
• BRW Aviation LLC: A Delaware (USA) holding company set up to hold the Avianca shares as collateral for the United Airlines loan to Efromovich’s Synergy Group. By setting up this entity in the US and Efromovich transferring the shares there beforehand, any legal action in the case of a default would take place in US courts, United Airlines’ home turf.
• Avianca Holdings: The corporate parent of Avianca Airlines, based in Colombia
• Avianca Brasil: Bankrupt Brazilian airline previously called Ocean Air, launched as an air taxi service by Efromovich. The airline publicly had its planes repossessed by lessors last month. On May 24, Brazilian regulators effectively shut the airline down.
• Avianca Argentina: Formally known as Avian Lineas Aéreas, this airline, also controlled by Efromovich is in danger of suffering the same fate as Avianca Brasil, according to reports.
• United Continental Holdings: The holding company of United Airlines, a major US based global carrier. United is a member of the Star Alliance, along with Avianca and Panamá based Copa. United has well known desires to increase its strength in Latin America, though regulatory and contractual hurdles would make a direct takeover of Avianca a complicated undertaking. In any case, it now has a controlling stake in Avianca, due to Efromovich’s default.
• Hernan Rincón: Avianca’s former CEO for the previous three years. He resigned days after his boss Efromovich’s BRW Aviation defaulted on its loan from United Airlines, right before the news became public. According to reports, coming from Microsoft’s toxic culture at the time, he was widely disliked by Avianca executives reporting to him.
• Renato Covelo: Avianca’s current interim CEO. The new board has retained him in that interim position, though the search for a permanent CEO continues.
• Rafael Alonso: Former President of Airbus Latin America, and until last week, board member of Avianca.
• Fabio Villegas: An economist, professor, politician and diplomat, Villegas was appointed by Efromovich to head Avianca from 2005 to 2016. Last week he was appointed to Avianca’s board of directors.
• Juan Emilio Posada: Former CEO of Avianca, then CEO of low-cost competitor Viva Colombia (now Viva Air) from 2014 to 2016. Last week he was appointed to Avianca’s board of directors.
• Advent International: Private Equity firm with experience and specialization in loyalty programs. Avianca sold them a 30% stake in Lifemiles, but a change in control of Avianca could trigger forced buyback provisions.

Headline photo credit: Loren Moss

To be clear, it was Avianca majority shareholder BRW Aviation defaulting on the loan agreement, with United Airlines,not Avianca itself.

• Avianca Holdings S.A.’s plan to refinance its $550 million senior unsecured notes due May 10, 2020, has taken longer than expected, thus Standard & Poor’s believes the company faces a higher refinancing risk.
• On May 13, 2019, S&P Global Ratings lowered its issuer credit rating on the Colombia-based airline operator to ‘CCC+’ from ‘B’ and its issue-level ratings to ‘CCC’ from ‘B-‘. Additionally, they lowered their issuer credit rating on LifeMiles LTD and their issue-level rating on the company’s senior secured term loan to ‘B’ from ‘BB-‘. Standard & Poor’s placed all ratings on CreditWatch with negative implications.
• The negative CreditWatch listing reflects a potentially additional downgrade stemming from the uncertainty about the timing and outcome of the company’s plan to address its 2020 debt maturities.
• Standard & Poor’s indicated that it will resolve the CreditWatch listing within the next 90 days. They indicated that they could lower their ratings if the company fails to refinance its senior unsecured notes due May 2020 within the next three months.

Standard & Poor’s stated that it believes Avianca faces a higher refinancing risk due to the approaching maturity of its $550 million senior unsecured notes on May 10, 2020, and potential implications in the cost of financing associated with the reputational risk that stems from the bankruptcy filing of related party Oceanair Linhas Aereas S.A., a Brazilian airline that licenses the trademark Avianca Brasil, and is also controlled by Germán Efromovich, the controlling shareholder of Avianca Holdings, through his investment vehicle Synergy Group.

During April, aircraft leasing firm Aircastle Limited (NYSE: AYR) reposessed 10 Airbus A320-200 aircraft leased to Avianca Brazil – a separate company from Avianca Holdings, but also controlled by Efromovich. Avianca Argentina. officially known as Avian Lineas Aéreas, also separate but related, faces similar action, with repossessions possible within 20 days that could shut down Argentine operations, according to reports.

The refinancing risk leaves the company dependent on favorable economic conditions to meet its financial commitments despite the management’s progress toward completing a potential refinancing of the notes. However, if end-market demand deteriorates or financial markets weaken, Standard & Poor’s believes Avianca would face difficulties securing new financing. The ratings firm has also downgraded its liquidity assessment on Avianca to “weak” from “less than adequate,” given that they expect the company’s sources of liquidity to be sharply lower than its uses in the next 12 months, well below 1.0x, reflecting a wide deficit as a result of its now $550 million short-term debt maturity.

Avianca could face liquidity pressures if it is unable to refinance these notes in the next 12 months. However, Standard & Poor’s believes that Avianca has relatively solid bank relationships in Colombia and internationally.

In November 2018, Efromovich’s Synergy transferred its 78.1% stake in Avianca to Delaware holding company BRW Aviation LLC, still owned by Synergy, to serve as collateral.

Avianca then indicated in an SEC filing that BRW is now in breach of at least one covenant of the loan agreement, and “any such breach constitutes an event of default under the United Loan.”

United Airlines could now theoretically take over Avianca completely, or sell control of Avianca to a third party, though a takeover would be complicated by certain national regulations where Avianca operates mandating certain percentages of local ownership.

Such defaults and change in control of the airline may trigger requirements by Avianca Holdings to purchase the 30% stake in its LifeMiles loyalty program that it sold to Advent International.

As of press time, United has not indicated publicly any intent to take control of Avianca, and Efromovich has insisted on his intention to retain control.

In April, Avianca CEO Hernan Rincón resigned “for personal reasons” after a 3-year tenure marred by a bitter pilot’s strike, and collapses in route operations leading to punitive government fines. The airline is currently without a permanent CEO. Rincón came to Avianca from outside the Airline industry, previously heading Microsoft’s Colombia operations.

This article was edited from a press release issued by Standard & Poor, with additional information from Ch-Aviation.

Héctor Cateriano, partner and CEO of MAS Equity Partners, has been elected president of ColCapital. (Photo credit: ColCapital)

Cateriano, partner and CEO of MAS Equity Partners, takes over the role from Mauricio Salgar, managing director of Advent International for the Andean region, who served as president for the past year.

In a statement, ColCapital said that Salgar, “ends an excellent year presiding the association” and that “we greatly appreciate his support and the dedication towards ColCapital’s achievements during the last year.”

Cateriano will bring roughly two decades of experience in private equity funds to his leadership role at ColCapital, the leading association for a private equity community in Colombia.

The association engages in advocacy for the sector, conducts research, hosts events, and aims to support those looking to make investments or otherwise engage with private equity firms in the nation.

At the end of 2017, a year in which ColCapital held a record 88 events, the association included 116 member organizations.

Leading Colombian institutions — including Bancolombian and Bancóldex — are among the members in addition to major global names such as BlackRock, Pegasus, Baker & McKenzie, Aon Risk Services, Crowe Horwath, Arthur Gallagher, BBVA Asset Management, and Ernst & Young.

LifeMiles is one of the largest loyalty coalition programs in Latin America with more than 6 million members as of March 31, 2015. A recipient of five Freddie Awards, the program is an important partner for many large banks as well as an increasing network of retailers in South America.

Avianca Holdings S.A. and Advent plan to further develop and grow LifeMiles’
coalition loyalty program, strengthen its presence in Colombia, Peru and Central America and expand its services into new growth markets in Latin America and abroad

Avianca’s CEO Fabio Villegas

Fabio Villegas, Chief Executive Officer of Avianca stated, “We are happy to welcome Advent as our new partner in LifeMiles B.V.  This transaction concludes a thorough evaluation process which allowed us to choose Advent as our ideal partner. Their solid understanding of the loyalty industry and verticals in which LifeMiles operates makes them an excellent long-term partner for the Company. We believe Advent has the right team to help us ensure LifeMiles reaches its full potential, and we look forward to working with them to capture additional opportunities that will benefit customers, commercial partners, and our shareholders.”

Mario Malta, a Managing Director in Advent’s São Paulo office, added, “We believe LifeMiles will benefit from the fundamental trends in Colombia and other key markets, including continued growth in consumer spending, travel and credit card use. We look forward to sharing our retail, and financial services sector expertise and leveraging our network to accelerate the Company’s growth.”

As of December 31, 2014, LifeMiles reported relationships with more than 200 commercial partners, 71 mileage agreements with financial institutions, and 28 co-branded credit and debit cards. It has developed a retail coalition that allows retailers to reward their customers with miles and facilitates the in-store redemption of miles for products sold by participating retailers.

Mauricio Salgar, a Managing Director in Advent’s Bogotá office, stated, “LifeMiles is a strongly positioned business supported by its partnership with Avianca with an innovative set of products and services that appeal to partners and consumers. We are pleased to partner with Avianca Holdings S.A. in supporting LifeMiles´ talented management team as they pursue growth objectives for the business.”

Advent has been investing in sectors complementary to LifeMiles and its commercial partners for over 20 years. The firm has done 65 investments in the business and financial services sector and 65 investments in the retail, consumer and leisure sector across 20 countries worldwide.

In connection with this transaction Avianca was supported by Morgan Stanley & Co. LLC as financial advisor and Simpson Thacher & Bartlett LLP as legal advisor. Deutsche Bank Securities Inc. served as financial advisor and Baker & McKenzie served as legal advisor to Advent.