Latam is expected to file for bankruptcy protection this month in the US

SAO PAULO – The Latam group seeks to finalize negotiations with investors to present its plan for judicial recovery in the United States in the coming weeks. The company must have competition for an alternative plan to be presented by competitor Azul directly to creditors to buy Latam Brasil.

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The Chilean company has been undergoing a restructuring process in the US since May 2020 and had debts of approximately US$18 billion at the time. In recent days, executives from the Latam group have reinforced that a hostile takeover of Latam Brasil by Azul would be impractical. Among analysts, however, opinions have been divided.

Until September 15, Latam must disclose to the market its blow out, a document that will summarize the main points of its Chapter 11 exit plan, the name given to the rule that governs judicial reorganizations in the US. Then you must submit your detailed plan. Even if Latam’s proposal is accepted, the airline’s shareholding composition will change, according to the president of Latam Brazil, Jerome Cadier.

Latam, according to Cadier, may combine financing proposals to pay off its DIP (debtor in possession, financing modality for recovering companies) of $2.45 billion and to finance its remaining debts to get out of US Chapter 11. The DIP guarantees creditors priority in receiving credits.

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In the case of Latam, the financing was divided into two parts. In the first, the specialized fund Oaktree contributed US$ 1.125 billion and Knighthead Capital, US$ 175 million. In the second, the Cueto group and Qatar, current shareholders of Latam, and Eblen contributed US$ 750 million; Knighthead Capital, $250 million, and minority shareholders of Latam, $150 million.

For Ana Carolina Monteiro, a lawyer at Kincaid Mendes Vianna, the competition with Azul should pressure Latam to present the best possible plan to creditors to guarantee the approval of the proposal at the creditors’ meeting.

– Azul needs to convince creditors to present an attractive plan, which is complex because the company does not have detailed information about Latam. In addition, there is uncertainty regarding the approval of a possible acquisition by regulatory bodies such as Cade – says Monteiro.

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Cadier says that Azul’s strategy is not aimed at buying Latam Brasil, which he sees as nothing feasible, but to make the Chilean group’s exit from the judicial reorganization process more expensive:

— From the beginning, we said that Latam is not for sale and that it is not in the group’s interest to separate Latam Brasil from the company. Who would benefit from this? Latam is not. The only one that would benefit from this is Azul.

New domestic routes

Latam Brasil, according to Cadier, gained competitiveness during its restructuring process, although it was not able to negotiate a salary reduction with its crew during this period. The executive says that the company should announce in the coming days its entry into domestic routes on which it did not operate before the pandemic and that it should compete directly with Azul.

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People familiar with Azul’s strategy, however, ensure that the company’s interest in Latam Brasil is not a bluff and that the company is already talking to creditors of the Chilean group. There are dialogues, for example, with funds that acquired the debt securities of leasing companies that credit Latam.

For analyst Victor Mizusaki, from Bradesco BBI, there are real chances that Azul will take Latam Brasil. In a report on the eventual deal, he stresses that the Oaktree and Knighthead funds should play a decisive role. Both are creditors of Latam’s DIP, in addition to being a shareholder and holder of Azul’s convertible bonds.

— Azul can propose something more advantageous than Latam’s plan for creditors. The company hired expert consultancy in the air sector to structure a proposal — says Mizusaki.

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To put its plan to a vote, Azul would need to convince a creditor to embrace its offer and present it to the Chilean group’s judicial reorganization judge, but only after the end of the exclusivity period for Latam, on November 23rd. Even if it approved its alternative plan, Azul would still need to dispute the purchase of Latam in a public auction.