Avianca files Chapter 11 plan that sees $3 billion of debt eliminated

By Sarah Lizee

Olympia, Wash., Aug. 11 – Avianca Holdings SA filed a Chapter 11 plan and related disclosure statement Tuesday with the U.S. Bankruptcy Court for the Southern District of New York.

According to the disclosure statement, the plan is supported by, among others, the official committee of unsecured creditors, consenting noteholders that collectively held a majority of the debtors’ 9% senior secured notes due 2023, and a majority of the holders of tranche B debtor-in-possession facility claims.

The plan provides for a comprehensive restructuring of the company’s balance sheet and a significant investment of new capital in the company’s business.

“The transactions contemplated in the plan will strengthen the company by substantially reducing its debt and increasing its cash flow and will preserve over 10,000 jobs,” the company said.

Under the plan, tranche A-1 DIP facility claims and tranche A-2 DIP facility claims will convert to seven -year exit financing upon emergence.

The debtors engaged in a competitive marketing process to determine whether an alternative investor would be willing to provide capital to the reorganized debtors on terms superior to those offered by the tranche B DIP lenders, which, as part of the DIP credit agreement, committed to convert all of the tranche B DIP facility claims to at least 72% of fully diluted equity securities of a new corporation or other legal entity that may be formed on or prior to the effective date to, among other things, directly or indirectly acquire substantially all of the assets and/or stock of the reorganized company.

Ultimately, the equity solicitation process yielded one indication of interest, which did not provide enough value to satisfy all tranche B DIP facility claims in full in cash.

Therefore, the debtors have elected to exercise their option under the DIP credit agreement to convert the tranche B DIP facility claims to new common equity as part of the plan.

Additionally, certain holders of tranche B DIP facility claims have agreed to contribute cash and/or assets to the reorganized debtors in an aggregate amount of $200 million in exchange for equity in the reorganized company.

Holders of general unsecured Avianca claims will receive the cash equivalent of their pro rata share of (a) 1.75% of the new common equity and (b) warrants to purchase 5% of the new common equity, with a cashless exercise price of $1.48 billion and a five-year term, provided that, in the event that the class of general unsecured Avianca claims votes to accept the plan, holders will receive the cash equivalent of their pro rata share of an additional 0.75% of the new common equity.

In lieu of receiving cash, holders of general unsecured claims may elect to receive their pro rata share of the applicable percentage of new common equity and the warrants by making a written election to receive the unsecured claimholder equity package.

“These recoveries are being carved out of the value of the collateral securing the tranche B DIP facility claims and would not otherwise be available to holders of such unsecured claims without the consent of holders of tranche B DIP facility claims, which consent was obtained in connection with good-faith, arms’-length negotiations among the debtors, the committee, and holders of tranche B DIP facility claims,” the company said.

The negotiations resulted in a global settlement, under which the debtors resolved all issues that may have been raised by the committee with respect to the plan, including, among other things, disputes on enterprise value.

On the effective date, all interests in Avianca will be canceled, released, extinguished, or receive economically similar treatment. Holders will not receive any distributions, nor retain any property.

Avianca said the transactions will eliminate about $3 billion of debt from the debtors’ consolidated balance sheet.

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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