A proposal for a loan of $ 2.45 million for the bankruptcy process of Latam Airlines by Oaktree Capital and the shareholders of the airline faces opposition from creditors, who say that the debt package is too expensive.
Creditors objected to the debtor in possession (DIP) financing to the bankruptcy court in New York on Thursday, where Latam filed for bankruptcy protection, battered by restrictions due to the coronavirus, according to court documents reviewed by Reuters.
“The consequence is a DIP line that is too big, too expensive and is not supported by a fair and adequate marketing process.“A committee representing unsecured creditors said in the document.
Creditors said Latam should have explored cheaper loans with other investors.
They also questioned whether Latam needs the total of US $ 2.45 million in debt it has contracted, noting that its advisers recommended US $ 2.15 billion in financing to continue its operations.
They also said Oaktree and the other DIP lenders would have the right to convert their debt into equity at an implicit discount of 32% when Latam emerges from bankruptcy.
Neither the airline nor Oaktree immediately responded to a request for comment.
Following its bankruptcy filing, Latam obtained $ 900 million in initial financing from shareholders Cueto and Qatar Airways, but said its goal was to raise up to $ 2.45 million to support operations.
He then announced Oaktree’s $ 1.3 billion financing in July, along with an additional potential of $ 250 million to come from Cueto and Qatar.
The airline is seeking court approval to combine the various credit tranches into a single package of up to $ 2.45 billion, according to the documents.
Unsecured creditors also asked the court to block an additional tranche of financing that could come from government support, since there is currently no such loan on the table.
Latam seeks to restructure $ 18 billion in debt and is the world’s largest airline to date seeking an emergency reorganization due to the pandemic.
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