Colombian carrier Avianca has become the latest Latin American airline, after LATAM and Aeromexico, to opt for DIP financing as it navigates in Chapter 11 bankruptcy proceedings in US Federal Court after it announced its seeking $1.2 billion.
Avianca has been working with its advisors, led by Seabury Securities, to put in place a DIP financing structure. Avianca’s proposed DIP financing structure consists of a Tranche A senior loan and a Tranche B subordinated loan, under which the airline seeks to obtain a total of approximately $1.2 billion USD of new funds ($900 million USD of Tranche A and $316 million of Tranche B) excluding any rollups of existing debt and purchase consideration.
Total DIP facilities inclusive of rollup consideration will be $2 billion, consisting of a $1.3 billion Tranche A and a $700 million Tranche B. Both tranches will be secured rateably by a lien on all available collateral, with the Tranche B subordinated in right of repayment to the Tranche A.
Avianca says that it has now reached key agreements on the requisite consents and approvals from the relevant entities, US Bankruptcy Court approval and other customary conditions, with various parties that are providing substantial funding towards such DIP loans. These agreements will allow the airline to offer prospective lenders a significantly enhanced collateral pool of assets to secure all of the DIP loans.
Goldman Sachs Lending Partners and JP Morgan have been engaged by Avianca subject to US Bankruptcy Court approval, to serve as co-lead arrangers and joint physical bookrunners of the Tranche A DIP Loans.
Avianca has made three key agreements ahead in order to proceed with the DIP financing. Its Tranche B DIP financing will include funding from its existing stakeholder lenders as well as new investors consisting of $316 million of new money financing and a rollup of approximately $384 million of secured convertible debt issued in December 2019 and January 2020.
The property that currently secures the existing Stakeholder Facility – Avianca’s 70% equity interest in Life Miles as well as certain Colombian Peso-denominated credit card receivables – will now be available to secure the DIP financing.
Avianca also has reached an agreement in principle with holders of Avianca’s 2023 senior secured notes; this agreement will be formalised in a restructuring support agreement (RSA) between Avianca and holders of a majority of the notes. As part of the RSA, all note holders will have an opportunity to provide up to $250 million of new money commitments to the Tranche A DIP, with certain holders of notes agreeing to backstop $200 million.
Avianca has reached an agreement in principle with AI Loyalty, holder of a 30% ownership stake in Avianca’s loyalty company, LifeMiles, to acquire 19.9% of LifeMiles equity, for a combination of cash and Tranche A DIP loans and also to receive a call option to acquire AI Loyalty’s remaining equity stake in LifeMiles for cash. As a result of this agreement, Avianca will own 89.9% of LifeMiles upon the closing of the transaction, with a path toward ultimately buying back 100% of LifeMiles. These incremental stakes in LifeMiles will also be available as collateral to secure the DIP facility.