LATAM Airlines creditors slam ‘fundamentally flawed’ bankruptcy plan

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A LATAM Airlines plane carrying a shipment of Sinovac coronavirus disease (COVID-19) vaccine arrives at Carrasco airport in Montevideo, Uruguay February 25, 2021. REUTERS/Mariana Greif

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  • Junior creditors target plan benefits for shareholders
  • Plan approval hearing set for May 17

(Reuters) – LATAM Airlines Group SA’s junior creditors are challenging its proposed reorganization plan, saying it unfairly benefits the carrier’s existing shareholders, such as Delta Air Lines, at their expense.

Objections were filed Monday in Manhattan bankruptcy court ahead of a May 17 hearing in which LATAM attorneys will ask U.S. Bankruptcy Judge James Garrity to approve the proposal. The airline is seeking to raise $5.4 billion through its Chapter 11 exit plan, which it filed two years ago as global travel came to a halt amid the COVID-19 pandemic. 19.

If approved, the plan would put a group of creditors, including Sixth Street Partners, in control of the company.

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The committee representing the unsecured creditors in the case has long opposed the airline’s restructuring strategy and has frequently urged it to consider other sources of funding. In an objection filed Monday, the committee accused LATAM of conducting “a fundamentally flawed process” that violates bankruptcy law by elevating shareholder rights. He argued that the plan offers shareholders, including Delta and Qatar Airways, overly favorable treatment in the form of discounted stock options and an “outsized role” in LATAM’s corporate governance.

LATAM representatives declined to comment.

Unsecured creditors are in line to see recoveries of 19.3% or up to 27.8% if they invest fresh money in the business.

The plan has also drawn objections from several other creditor groups. Banco del Estado de Chile, which is the representative of a group of Chilean bondholders, claimed in its objection that the airline had gone ahead with its plan without showing that it was considering other restructuring proposals.

The U.S. Department of Justice’s bankruptcy watchdog also objected to the plan’s inclusion of certain legal protections, known as non-debtors, for LATAM-related entities that aren’t themselves bankrupt. .

The airline recently overruled another objection from the unsecured creditors’ committee regarding the status of $1.4 billion in loans from one LATAM unit to another before the bankruptcy. The committee argued that the $1.4 billion should not be considered valid debt because it would result in international bondholders receiving higher recoveries than they are entitled to. Garrity dismissed that objection on Friday, concluding that the business-to-business loans were enforceable under New York law.

The case is In re LATAM Airlines Group SA, US Bankruptcy Court, Southern District of New York, No. 20-11254.

For LATAM: Richard Cooper, Lisa Schweitzer, Luke Barefoot and Tom Kessler of Cleary Gottlieb Steen & Hamilton

For the committee: Allan Brilliant, Eric Brunstad Jr, Craig Druehl and David Herman of Dechert

Read more:

LATAM Airlines bankruptcy judge clears $734 million in financing charges

LATAM Airlines files restructuring plan to emerge from bankruptcy

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