Avianca Holdings warns stock may be made worthless

Avianca Holdings’ share price halved in the space of a week from September 1, the date when the Panamanian holding warned in a United States Securities and Exchange Commission filing that its bankruptcy exit plan would probably make the stock worthless.

Because certain creditors may not receive any payback on their claims until others have been paid in full, the claims held by the company’s ordinary and preferred shareholders may not be satisfied, it admitted.

As a consequence, “under the Chapter 11 plan, the value of the shares of the company would be reduced to zero, due to the decrease in equity of the company attributable to the debtors’ liabilities to third parties and creditors, as well as the injection of capital by new investors pursuant to the Chapter 11 plan,” the disclosure explained.

Avianca Holdings is traded on both the Colombia and New York stock exchanges. In Bogotá, the share price plummeted from COP161.40 (USD0.42) on August 30 to COP71.10 (USD0.19) at the close of September 8, according to stock exchange data. In New York, it fell from USD0.50 on September 1 to USD0.15 on September 7 before recovering to USD0.22 at the close of September 8.

A hearing has been scheduled for September 14 to consider the Avianca Airlines (AV, Bogotá) parent’s proposal to exit Chapter 11 bankruptcy. This will include the possibility of converting some of its bankruptcy loans into equity in a new reorganised holding company, the September 1 filing said. According to the terms of an Equity Conversion and Commitment Agreement (ECCA) dated September 1, about USD900 million in DIP obligations under Tranche B may be converted into equity in the new holding entity, as may USD200 million of additional capital contributed by participating lenders under the same tranche.