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(Reuters) – LATAM Airlines Group SA on Tuesday won court approval of a settlement with creditors that will secure funding for a proposed restructuring despite an outcry from junior creditors objecting to hundreds of millions of dollars fees associated with the transaction.
U.S. Bankruptcy Judge James Garrity in Manhattan approved LATAM’s so-called stand-by agreement with a group of creditors, under which the creditors will guarantee the financing if no one else comes forward to provide it. As part of the deal, the 15 supporting creditors would receive $734 million in fees to ensure $5.4 billion in equity and debt issuances are fully funded. The deal is part of the Chilean airline’s broader restructuring plan that calls for it to raise more than $8 billion to pay creditors and emerge from bankruptcy.
“The opponents have not rebutted the presumption that entering into the support agreements is a proper exercise of debtors’ business judgment,” the judge said in his statement. 85-page decision.
A representative for LATAM did not immediately comment.
LATAM filed for Chapter 11 in the U.S. Bankruptcy Court for the Southern District of New York in May 2020, as global travel came to a halt amid the COVID-19 pandemic.
Two groups of junior creditors opposed the guarantee agreement, including the airline’s official committee of unsecured creditors. The committee argued that the fees the support group, which includes Strategic Value Partners, Sixth Street Partners and Olympus Peak Asset Management, would collect are “unreasonably high” and that the airline should have considered lower-cost options. Additionally, the committee argued that the deal unfairly favored shareholders, including Delta Air Lines Inc, over junior creditors.
The committee, which pushed LATAM to consider other sources of funding, also challenged the discounts the support group would receive to buy new debt and stock in the company.
A lawyer for the committee did not immediately respond to a request for comment.
In Tuesday’s decision, Gravity rejected the argument that the fee had not been tested in the market, saying it was satisfied as it was the result of a thorough mediation process. He also said the fee is reasonable given the risk that supporting creditors take in pledging to guarantee the financing of such large rights offerings.
Garrity also approved an agreement with existing shareholders, including Delta, to support $400 million of a common stock offering and up to $1.3 billion of a debt offering. This agreement does not include fees but provides legal protections and expense reimbursements for shareholders.
The case is In re LATAM Airlines Group SA, US Bankruptcy Court, Southern District of New York, No. 20-11254.
For LATAM: Richard Cooper, Lisa Schweitzer, Luke Barefoot and Thomas Kessler of Cleary Gottlieb Steen & Hamilton
For the committee: Allan Brilliant, Michael Doluisio, Craig Druehl and David Herman of Dechert
For supporting creditors: Kenneth Eckstein, Douglas Manna, Rachel Ringer and Douglas Buckley of Kramer Levin Naftalis & Frankel
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