LATAM rejects creditor claims of funds moved to Cayman units

LATAM Airlines (LA, Santiago de Chile Int’l) parent LATAM Airlines Group has rejected as “absolutely false” claims published in the Chilean newspaper La Segunda on the alleged transfer of USD1.3 billion to LATAM Finance Ltd, a subsidiary based in the Cayman Islands.

Representatives of a group of Chilean creditors of LATAM, which intends to exit Chapter 11 by the end of 2021, had alleged to the daily that this amount had been moved from the parent to a Cayman subsidiary, leaving local creditors at a disadvantage compared to those based abroad.

The Chilean creditors have filed an application in the Bankruptcy Court of the Southern District of New York, where the restructuring is being processed, for the judge to allow the inclusion of LATAM Finance and another Cayman financing unit, Peuco Finance Ltd, in the reorganisation process.

This would “have a tremendous impact” on how much they can recover and whether they would vote in favour of LATAM’s restructuring plan, they argued in their motion, which was filed by Banco del Estado de Chile as indenture trustee of several of the airline’s Chilean bonds.

The two Cayman companies were created, the filing alleged, in connection with the issuance of USD1.5 billion in international bonds but have no operations or assets themselves. It added that after the bond issue, LATAM Group “engaged in certain transactions that resulted in Peuco holding USD1.3 billion in intercompany claims against certain operating companies, thus siphoning away hundreds of millions of dollars in value” from local bondholders and creditors.

In a letter to La Segunda, Juan José Tohá, director of corporate affairs at LATAM Group, denied that any funds had been transferred to the Cayman Islands before the group entered Chapter 11 proceedings in May 2020, clarifying that all transactions had taken place between 2017 and 2019. He also dismissed the idea that the transfers had anything to do with lowering the company’s tax burden, an assertion that had been made in the earlier article.

“All transactions between group companies are duly reported to local regulators,” he stressed.