Avianca Seeks Court Approval For $2 Billion DIP Financing

Latin American airline Avianca Holdings SA AVHOQ is seeking court approval for financing that totals about $2 billion.

According to Bloomberg, the airline had filed for Chapter 11 bankruptcy protection in May. The pandemic has forced airlines to suspend flights, lay off workers, and seek help from governments.

Other airlines, like Grupo Aeromexico SAB de CV GRPAQ and Virgin Australia Holdings Ltd VBHLF have also sought bankruptcy protection.

What Happened: Avianca announced today that it has secured Debtor-In-Possession (DIP) commitments and has filed an approval motion in court.

The airline will acquire approximately $2 billion in DIP financing from existing investors and third-party institutional investors. The financing package includes existing debt roll-ups and a purchase loan consideration.

The $2 billion package broken into a $1.27 billion Tranche A senior loan and a $722 million Tranche B subordinate loan. $1.127 billion from the DIP financing are new funds.

"We are extremely pleased with the support received from a large number of third-party institutional investors and our existing lenders. We believe this demonstrates the market's confidence in Avianca's future as a strong, competitive and profitable airline," said Avianca CEO Anko van der Werff.

Why Does It Matter: Avianca has resumed most domestic flights and plans to increase the flight count for both domestic and international travel in the coming weeks.

The company had announced a Restructuring Support Agreement (RSA) on Aug. 28, with the approval of majority holders of its 2023 Senior Secured Notes.

The DIP loans are secured against airlines' key assets, including ownership stakes in LifeMiles and cargo subsidiaries in addition to some of its key brands and cash accounts.

The court's approval hearing is scheduled for Oct. 5.

Price Movement: Avianca stock fell 7.78% to close at $0.46 per share on Monday.