With Government Loan In Doubt, Avianca Secures Additional DIP Financing

Today, Avianca Holdings S.A. (OTCMKTS: AVHOQ, BVC: PFAVH) announced that it has arranged a total of $2 billion in private financing, after a lawsuit temporarily blocked $370 million USD in Colombian government loans. Part of the total financing announced includes $240 million USD in backstop financing, indicating the bankrupt airline will still pursue government bailouts but has standby financing should arrangements fail.

The debt includes $220 million of existing notes, with secured note holders adding $290 million in new loans. Total financing including existing debt is expected to be approximately US$ 2.0 billion, consisting of a US$ 1.27 billion Tranche A senior loan and a US$722 million Tranche B subordinated loan. The DIP financing includes approximately US$ 1.217 billion of new funds consisting of US$881 million in Tranche A and US$336 million in Tranche B.

The $722 million Tranche B DIP (Debtor in Possession) loan includes $336 million of new money, and a $386 million refinancing of existing debt. While Kingsland Holdings participated in the new financing, Avianca says that United Airlines only participated in the refinancing of its existing debt.

United Airlines took control of the majority of Avianca stock after former controlling shareholder & chairman Germán Efromovich defaulted on a $456 million USD loan last year. United’s Latin American strategy depends largely on Avianca’s route network, so the airline’s recovery is critically important for the US carrier. Beyond taking control of the stock, United, along with Kingsland Holdings made an additional $250 million convertible loan to Avianca in November of last year.

Kingsland Holdings is the 2^nd largest shareholder behind BRW Aviation, the investment vehicle controlled by United Airlines (UAL). Kingsland Holdings is the investment entity controlled by Roberto Kriete, arch-nemesis of former chairman Efromovich. Kriete was the former chairman of El Salvador-based TACA Airlines which Avianca acquired in a stock-swap, completing the merger in 2013. That merger made Kriete the second largest shareholder in Avianca. Three years later, Kriete sued Efromovich for mismanagement and “plundering” the airline. Kriete also sought to block Avianca’s strategic alliance with United.

Last year, Kriete’s relationship with United took a turn for the better, with United Airlines, after taking control of Avianca, ousted Efromovich and installed Kriete as Avianca’s new chairman of the board. The two parties collaborated on additional financing for Avianca, by then struggling under crippling debt, dismal labor relations and increased competition,, They installed Anko Van Der Werff as CEO, but their fragile plans for recovery were laid waste by the Coronavirus COVID-19 Pandemic. The company filed for bankruptcy in May of this year after the Colombian government grounded all passenger flights to prevent the viral contagion.

“We are extremely pleased with the support received from a large number of third-party institutional investors and our existing lenders. We believe this demonstrates the market’s confidence in Avianca’s future as a strong, competitive, and profitable airline. Securing these financing commitments is another concrete step forward in our Chapter 11 reorganization process and we look forward to the U.S. Court approval of our proposed DIP financing package. We have resumed operations in most domestic markets and plan to add more domestic and international destinations in the coming weeks, while we remain focused on refining our reorganization plan to fully address the current industry landscape and the effects of COVID-19, enabling our team to continue driving efficiency and margin expansion and positioning Avianca to successfully serve Latin America’s air travel needs for many years to come,” said CEO Anko van der Werff.

The DIP loans are secured by Avianca’s key assets (including the airline’s ownership stakes in its LifeMiles and cargo subsidiaries, as well as by its key brands and cash accounts). Both tranches are secured by a lien on all available collateral, with Tranche B subordinated in right of repayment to Tranche A. The collateral pool for these DIP financings was recently substantially increased via a series of agreements previously announced by Avianca.

The financing is subject to U.S. Court approval, with a hearing scheduled for October 5, 2020, and other customary conditions.

Seabury Securities LLC is serving as Avianca’s investment bank and financial advisor. Goldman Sachs Lending Partners LLC and JPMorgan Chase Bank, N.A. are serving as co-lead arrangers and joint bookrunners of the Tranche A DIP Loans. Milbank LLP is serving as Avianca’s legal advisor.