Avianca seeks approval to convert $940 million of DIP loans to equity

By Sarah Lizee

Olympia, Wash., Sept. 2 – Avianca Holdings SA is seeking court approval to convert about $940 million in tranche B debtor-in-possession loans into equity in the reorganized company under its proposed plan of reorganization, according to a motion filed Wednesday with the U.S. Bankruptcy Court for the Southern District of New York.

Additionally, some of the tranche B lenders have agreed to contribute $200 million of additional capital in exchange for additional equity.

Avianca said that it subjected the conversion option to a market test, and through an independent committee of the company’s board of directors, determined to structure the plan around the conversion.

There is a breakup fee equal to 5% of each supporting tranche B lender’s new value commitment.

Under the agreement, the company must obtain approval of the conversion agreement and the disclosure statement for the plan by Oct. 15. The company must then obtain confirmation of the plan within 60 days of the order approving the disclosure statement.

Avianca said the agreement will allow the company to emerge from Chapter 11 with about $1 billion of unrestricted cash and $4 billion of total debt and IFRS-16 lease obligations. Therefore, the company will have about $3 billion of net debt at emergence, compared to over $5 billion at the initial petition date.

The plan proposed to distribute 79% of the equity in the reorganized company to a combination of unsecured creditors and tranche B lenders in exchange for their claims, and 21% of the equity in the reorganized company to supporting tranche B lenders in exchange for their new $200 million of contributions and related commitment premium.

Unsecured creditors will have the option to elect to receive their pro rata share of the consideration from a pool of new common equity equal to 1.75% of the claims-based equity distribution. An additional pool of new common equity equal to 0.75% of the claims-based equity distribution will be available for distribution to electing unsecured creditors on a pro rata basis if the class of general unsecured Avianca claims votes to accept the plan.

Unsecured creditors that elect to take their distributions in equity will also be entitled to warrants for an additional 5% of the equity in reorganized Avianca.

The total claims-based equity distribution is valued at $800 million, and the total warrant consideration is valued at $16 million.

The claims-based equity distribution and the contribution-based equity distribution will be subject to dilution by shares issued upon the exercise of the unsecured creditors’ warrants and shares issued under any employee or management incentive plan.

The company noted that it is still able to receive and consider unsolicited alternative transaction proposals.

Avianca is a Bogota, Colombia-based airline holding company that filed bankruptcy on May 10, 2020. The Chapter 11 case number is 20-11133.

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