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Law360 (July 9, 2020, 6:13 PM EDT) -- LATAM Airlines Brasil filed a voluntary Chapter 11 plan in New York bankruptcy court Thursday, following its South American airline parent LATAM Airlines Group SA, which recently buckled under the weight of debt due to massive losses sparked by the COVID-19 pandemic.
Multiple LATAM Airlines Group subsidiaries and affiliates, including Tam SA, Tam Linhas Aereas SA, Aerolinhas Brasileiras SA and Multiplus Corredora de Seguros Ltda., filed separate Chapter 11 petitions and asked the bankruptcy judge to jointly administer their cases with their parent's bankruptcy for procedural purposes.
LATAM Airlines Group filed for Chapter 11 protection in May, saying the pandemic had reversed its growth trend and left it unable to make payments on its $7.1 billion of debt.
Chief Financial Officer Ramiro Alfonsin Balza said in a declaration that LATAM was financially and operationally the strongest airline group in Latin America until April, when it cut its passenger routes by 95% due to coronavirus travel restrictions, border closings and the drop in demand.
Although the company's cargo operations account for 11% of its annual revenues and have continued to grow during the pandemic, that business is not enough to offset the effect the pandemic has had on its bottom line, Balza said.
On June 28, LATAM Airlines Group asked the judge to sign off on an initial $900 million debtor-in-possession loan backed by Qatar Airways Investments (UK) Ltd. and Costa Verde Aeronautica SA — called the Tranche C DIP lenders — to keep its business operating, noting that the $1.35 billion in cash it has on hand won't be enough to get it through bankruptcy.
A hearing on LATAM's requested DIP loan is set for July 30.
In the new bankruptcy petitions filed Thursday, Tam said it owes more than 100,000 creditors between $10 billion and $100 billion and has between $10 billion and $100 billion in assets.
Citibank NA holds the largest amount of Tam's secured claims, which cover a $600 million revolving credit line backed by 26 planes,15 engines and spare parts as collateral.
Credit Agricole Corporate and Investment Bank, Natixis and JPMorgan Chase & Co. each hold between $200 million and $300 million in secured claims, and BNP Paribas SA and Investec Bank PLC together hold $300 million in secured claims. Those secured claims are also backed by planes and various airplane equipment, according to the filing.
Tam's petition says there are approximately $1.5 billion in unsecured LATAM 2026 notes and LATAM 2024 notes issued. Aside from the notes, Chilean bank Banco Santander-Chile holds Tam's largest amount of unsecured claims, at about $549 million, followed by EXIM Bank, which holds $362 million, and Banco do Brasil SA, which holds $195 million, the petition says.
Tam is co-owned by HoldCo SA and LATAM Airlines Group, and Delta Airlines Inc. holds a 20% stake in LATAM Airlines Group, according to the filings.
LATAM said in a statement Thursday that Chapter 11 is the best option for LATAM Airlines Brasil to have access to new sources of liquidity, which will strengthen its leadership position in the airline industry.
The filings are the latest in a wave of bankruptcies to rock the airline industry around the world since March due to the economic fallout caused by the global outbreak.
In April, European airline Norwegian Air moved four affiliates into bankruptcy, and a regional Alaskan airline operator also filed for Chapter 11 protection.
In May, U.S. affiliates of third-party airline ticket booking agents JustFly Corp. and Canada's FlightHub Group sought Chapter 15 recognition in Delaware, holding at least $28 million in debt, and Avianca, Latin America's second-largest airline, filed a Chapter 11 petition in New York, saying its revenues plunged 80% since the pandemic devastated global air travel.
Last month, Mexican airline Aeromexico sought bankruptcy protection in New York, and Hong Kong-based Cathay Pacific said it would be receiving over $3.5 billion in funding from the government of Hong Kong as it deals with the COVID-19 pandemic and the political unrest in the Chinese territory, readying itself for "tough decisions" on the company's future.
LATAM was founded more than 90 years ago and grew to be the fourteenth largest airline group in the world based on the number of passengers with 340 aircraft and generating $10 billion in revenues, according to Balza's declaration. Last year, it employed approximately 42,000 people around the world, holding 1,400 per day and transporting 900,000 tons of cargo, he said.
The debtors are represented by Luke A. Barefoot, Richard J. Cooper, Lisa M. Schweitzer and Thomas S. Kessler of Cleary Gottlieb Steen & Hamilton LLP.
Counsel information for the creditors wasn't immediately available Thursday.
The new cases are In re: Tam SA, case number 20-11597, In re: Linhas Aereas SA, case number 20-11598, In re: Aerolinhas Brasileiras SA, case number 20-11603, and In re: Multiplus Corredora de Seguros Ltda., case number 20-11599, and the parent company's case is In re: LATAM Airlines Group SA et al., case number 20-11254, all in the U.S. Bankruptcy Court for the Southern District of New York.
--Additional reporting by Vince Sullivan and Dave Simpson. Editing by Jay Jackson Jr.
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