Latam Airlines term loan B could stumble in syndication on poor market conditions

By Sara Rosenberg

New York, Sept. 30 – Market sources are hearing that Latam Airlines’ term loan B may be having a hard time filling out by Monday’s commitment deadline as the airline sector in general is a tough sell in the current environment.

“Definitely struggling a lot to get close to book size. It’s a better story than Brightspeed, but airlines at the start of a potential recession are hard to get through credit committees,” one source remarked.

“Airlines are viewed as very cyclical – both business and leisure travel. Less demand (in a recession) but the planes mostly still fly and the employees get paid, so revenue declines drop mostly to the cash flow line,” the source continued.

What does work in Latam’s favor is that the company is “simple airline recovering to 2019 levels story, and they have Delta coming in with an investment which seems like an endorsement of viability,” the source explained.

The source added that the recently pulled Brightspeed deal was “overlevered speculation on massive CAPEX needs to convert very rural customers to fiber in a world of 5G towers and Starlink satellites with a sponsor that many do not like.”

Brightspeed details

As previously reported, on Thursday Brightspeed (Connect Holding II LLC) withdrew its $2 billion seven-year term loan B from syndication and terminated plans for a $1.865 billion seven-year senior secured notes offering due to market conditions.

The term loan B was talked at SOFR+10 bps CSA plus 500 bps with a 0.5% floor, an original issue discount of 92 and 101 soft call protection for six months.

Brightspeed’s $3.6 billion of credit facilities (B2/B-), which also included $600 million revolver and a $1 billion term loan A, and the notes were going to be used to fund the acquisition of Lumen Technologies’ incumbent local exchange carrier business in 20 states by Apollo Global Management Inc. for $7.5 billion. The acquisition is still expected to close in early October using an equity contribution from Apollo and proceeds from the committed financing obtained at the time of the deal announcement.

BofA Securities Inc., Barclays, Goldman Sachs Bank USA, Mizuho, BNP Paribas Securities Corp., MUFG, Deutsche Bank Securities Inc., Credit Suisse Securities (USA) LLC, BMO Capital Markets Corp., Citigroup Global Markets Inc., Morgan Stanley Senior Funding Inc. and RBC Capital Markets were leading the credit facilities.

Brightspeed is a Charlotte, N.C.-based provider of broadband and telecommunications services.

Latam proposed terms

Latam’s $750 million five-year term loan B (B2/B+) launched with a call on Sept. 23 with price talk of SOFR plus 775 basis points with a 0.5% floor and an original issue discount of 92 to 93.

The term loan is non-callable for one year, then at 101 in year two and par thereafter, and amortizes at a rate of 1% per annum.

Financial covenants include minimum consolidated liquidity of $750 million, tested as of close each business day, and minimum asset coverage of 1.6x, tested semi-annually, subject to a 45 day cure period. There is a maximum-loan-to-value-ratio of 62.5% and the debt calculation will include pari debt and pre-sold frequent flyer program miles.

As mentioned above, commitments are due on Monday.

Goldman Sachs Bank USA, JPMorgan Chase Bank, Barclays, BNP Paribas Securities Corp. and Natixis are leading the deal that will be used with $750 million of senior secured notes due 2027 and $750 million of senior secured notes due 2029 to repay existing debtor-in-possession facilities in connection with the company’s emergence from bankruptcy and for general corporate purposes.

Latam Airlines is a Santiago, Chile-based airline.

Fund flows

In other news, actively managed loan fund flows on Thursday were negative $171 million and loan ETFs were negative $131 million, sources said.

Loan funds reported weekly outflows of $1.9 billion, including negative $842 million ETFs.

These were the second largest outflows of 2022 for loans with the past six weeks’ exodus totaling negative $6.9 billion equating to 7.8% of weekly AUM, sources added.

Net inflows for loan funds since the beginning of 2021 are down to $48.4 billion.

Inflows for loan funds year to date are $1.9 billion, with ETF negative $2.6 billion.

Loan indices

IHS Markit’s iBoxx loan indices declined on Thursday, with the Leveraged Loan indexes (MiLLi) closing out the day down 0.22% and the Liquid Leveraged Loan indices (LLLi) closing out the day down 0.18%.

Month to date, the MiLLi is down 2.15% and year to date its down 3.58%. The LLLi is down 2.47% month to date and down 4.82% year to date.

Average secondary market bids in the U.S. on Thursday were 92.60, down 0.15% from the previous day and 4.39% year to date.

According to the IHS Markit data, some of the top advancers on Thursday were Isagenix’s June 2018 term loan at 39.60, up from 36, Heritage Power’s June 2019 term loan at 34.60, up from 33.06, and Staples’ April 2019 term loan at 93.64, up from 91.25.

Some top decliners on Thursday were National CineMedia’s June 2018 term loan B at 58.25, down from 64.48, Carestream’s May 2020 extended term loan at 85, down from 93.75, and Telesat Canada’s December 2019 covenant-lite term loan at 52.75, down from 58.

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