Aeromexico and Latam Airlines Group cannot catch a break in their separate, but fraught, U.S. Chapter 11 bankruptcy restructurings. Both airlines face allegations of using coercive tactics, namely offering creditors additional funds or the promise of future business, to garner support for their respective reorganization plans.
A group of Chilean bondholders represented by trustee Banco del Estado de Chile argued on January 20 that Latam offered “patently unreasonable” settlements totaling $2.8 billion to a creditor group known as the Evercore Group in exchange for their support of its plan. The support of the group would effectively nullify the votes of the Chilean bondholders and general unsecured creditors, according to the claim.
Members of the Evercore Group Sajama Investments, a partnership of Sixth Street Partners and Sculptor Capital Management, and SVP, including Poppintree Park LLC and Strategic Value Partners, both objected on January 20 to the Chilean bondholders claims. They called the allegations “theories” and “conjectures.”
The unsecured creditors committee in Aeromexico’s bankruptcy objected for a second time to the airline’s restructuring plan on January 18. The committee claimed that Aeromexico built support for its plan by offering creditors special benefits, the promise of future business, or the threat of a worse outcome if the plan was rejected. The committee alleges that these efforts contributed to nearly two-thirds of the 88 percent of votes in favor of the plan.
In addition, the committee claimed that Aeromexico’s plan unfairly favors “insiders,” namely major shareholder Delta Air Lines and four Mexican shareholders — Eduardo Tricio Haro, Valentin Diez Morodo, Jorge Esteve Recolons, and Antonio Cosio Pando — that control the majority of the airline’s board. The plan would give Delta 20 percent of the airline’s post-bankruptcy shareholdings, and the Mexican shareholders at least 4.1 percent.
Aeromexico said Friday that it “continues working with all of its key stakeholders” to achieve confirmation of its reorganization plan.
The objections are the latest stumbling blocks in Aeromexico and Latam’s fraught restructuring processes. Unlike their competitor Avianca that exited Chapter 11 in December, the airlines have faced challenges building consensus for their plans among creditors. Aeromexico has faced multiple objections from its unsecured creditors, while Latam is subject to an unsolicited takeover offer from Azul that is backed by several of its large creditors.
Aeromexico settled the unsecured creditors’ initial objection, which centered on the post-restructuring valuation of the airline, by agreeing to a one-time cash termination payment upon confirmation.
Latam has as yet fended off Azul’s takeover proposal, which it called “skeletal and incomplete” in a court filing on January 16. However, its own unsecured creditors committee asked the Bankruptcy Court for the Southern District of New York in December to end Latam’s exclusivity period. If granted, Azul and its supporters could officially submit their takeover plan for consideration.
For its part, Latam said in its January 16 filing that requests to Azul for additional details and information related to its proposal were “entirely unanswered.”
Hearings for both the confirmation of Aeromexico’s plan, and on Latam’s disclosure statement — a precursor to a confirmation hearing — are scheduled for January 27.
Updated with Aeromexico’s update Friday that 88 percent of creditors support its restructuring plan.