US court postpones decision on Avianca’s restructuring plan

A court decision on the bankruptcy exit plan of Avianca Holdings has been postponed pending the receipt of additional documentation, the airline group announced.

Judge Martin Glenn of the US Bankruptcy Court in the Southern District of New York postponed an October 26 hearing, setting a deadline for additional documentation to be submitted by 1700L (2100Z) on October 28, 2021, Avianca Holdings said in a Securities and Exchange Commission (SEC) filing. “The Company remains focused on advancing its Chapter 11 process as efficiently as possible,” it said.

Avianca Holdings – the parent of Colombia’s Avianca Airlines (AV, Bogotá) – is asking for the approval of a restructuring plan that will reduce its debt by about USD3 billion, preserve more than 10,000 jobs, and transfer majority ownership to lenders and noteholders. Creditors were asked to submit their votes on the plan to the court by October 15.

According to the plan, Avianca Holdings will roll over USD1.6 billion of loans and raise USD200 million of new equity, reports Bloomberg. Certain lenders and noteholders including United Airlines and Kingsland Holdings – which is controlled by Salvadoran mogul Roberto Jose Kriete Avila and Citadel LLC – will gain 72% equity in exchange for cancelling more than USD900 million of debt.

During the hearing, reports Bloomberg, the judge was displeased that Avianca had not revealed earlier its intention to relocate its legal domain from Colombia to the United Kingdom, and queried whether another re-organisation was being considered under British law. If so, the new owners’ capital would be protected under UK corporate restructuring rules, Glenn remarked, whereas under the US bankruptcy code, all creditors must receive full payment before shareholders receive anything.

However, Avianca’s lawyer Evan Fleck denied the company was pursuing restructuring in the UK. The decision to become a UK corporate entity was made well after the reorganisation process, he said. Instead, he stated, the move was aimed at obtaining certain tax benefits. Avianca Holdings is based in Panama while Avianca Airlines operates out of Colombia.

“The proposal to domicile the new holding company in the United Kingdom is based on the fact that the rules and decisions of the Chapter 11 process are recognized in said territory. Consequently, the new domicile does not imply any change in the operation or presence of the airline in their respective jurisdictions,” Avianca clarified.

However, La República, quoting Avianca Chief Executive Officer and Chairman Adrian Neuhauser, reported that Avianca Holdings would end and be incorporated in the UK before the end of the year as a new company under the name Avianca Group International Limited. “We believe that the main solution to meet all the requirements of Chapter 11 is to emerge as a new company. We choose a place that respects American law and Chapter 11; a country where there are operations; a country that does not generate additional substantial tax burden for us; and a country that has extensive treaties to defend its economic interests in the countries where we operate ”, said Neuhauser. Avianca Group International Limited would take control of the entire current airline structure, he added.

The company would cancel its registrations on the New York Stock Exchange and the Colombian Stock Exchange, and initially would not be listed on the stock market. “That is a discussion with the regulators, but we are going to cancel the registrations that we can and we will not be on the stock market when we emerge. It does not mean that this is a permanent state, we believe that we have to return to the capital market because it is an obvious source of financing, but the term of that, in the end, will be determined by the investors,” said Neuhauser.

On the reduction in debt to be effected through the restructuring plan, he said: “There is a substantial increase in cash and a substantial decrease in debt. The debt is also rescheduled with a longer-term, with more reasonable repayments, so we are very comfortable with the structure that is emerging and it is perfectly solvable,” he said.

“We want growth to occur, not by counting aircraft, but by using the assets we have in a better way. It is an Avianca that has a 15% smaller fleet, but that will end up 10% larger, giving more connectivity and at a better price,” Neuhauser said.

Avianca Holdings and certain of its subsidiaries and affiliates filed voluntary petitions under Chapter 11 of the US Bankruptcy Code on May 10, 2020, as Colombia and other South American countries went into COVID-19 lockdown. Under an eight-year financial forecast published in August, Avianca expects to post a pre-tax profit of USD40 million in 2023 and USD500 million by 2028.