A U.S. bankruptcy judge rejected a US$ 2.4 billion financing plan for struggling LATAM Airlines on the grounds that a convertible loan included as part of the package would amount to “improper” treatment of other shareholders.
The move is a setback for LATAM, which needs short-term liquidity. But in a lengthy court decision, the judge left the door open for the Chilean carrier to introduce a similar financing plan in the future, this time without the possibility of converting part of the loan into equity.
The proposal supported by LATAM was composed of a US$ 1.3 billion loan from asset management firm Oaktree Capital Management and a US$ 900 million convertible loan from several key LATAM shareholders, including the Cueto family that controls the airline and Qatar Airways.
LATAM presented the bankruptcy financing proposal in July, which prompted a challenge from other creditors, who even assembled a separate funding plan with investment bank Jefferies Group. The key dispute was over the propriety of the convertible loan.
LATAM filed for bankruptcy protection in May, hammered by the world travel crisis generated by the coronavirus pandemic. At the time, it was the world’s largest airline to file for bankruptcy due to COVID-19.