Latam Airlines Creditors Say Debt Deal Wrongly Favors Equity

(Bloomberg) -- Latam Airlines Group SA's reorganization plan wrongly favors top shareholders over creditors and will fail to win court approval, an official committee of unsecured creditors told the judge overseeing the Chilean air carrier's bankruptcy.

“The plan is a very rich deal for the inside shareholders,” Allan S. Brilliant, an attorney for the committee, said during a court hearing Tuesday.

The proposal came out of mediation talks overseen by a former bankruptcy judge and is based on a deal with groups that control at least 51% of the company's stock, according to court records. Under the reorganization plan, Latam would sell $800 million in stock to existing shareholders, and take on around $2.75 billion of new debt made up of bonds or loans and a credit facility.  

Ultimately, the deal allows a group of creditors -- led by Sixth Street Partners, Sculptor Capital and SVPGlobal -- to take control of the company.

Latam Air Reaches Bankruptcy Deal That Hands Reins to Creditors

Supporters argue the deal with shareholders was necessary, in part because it will prevent a fight over potential conflicts between Chilean securities law and the U.S. bankruptcy code.

The plan “avoids years of cross-border litigation,” said Richard Mason, who represents shareholders.

After creditors get a chance to vote on the proposal, U.S. Bankruptcy Judge James L. Garrity will decide whether to approve the plan and allow Latam to exit court oversight. At least two groups of noteholders have said they haven't yet decided whether to back the reorganization. Latam will continue talking with creditors, including the noteholders, while it moves toward final court approval, company attorney Lisa M. Schweitzer told Garrity.

The case is LATAM Airlines Group SA et al., 20-11254, U.S. Bankruptcy Court for the Southern District of New York (Manhattan). To view the docket on Bloomberg Law, click here.

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