Two key groups of Latam Airlines Group SA creditors, frustrated by a bankruptcy process that has dragged on for almost 18 months, are asking for a mediator to help devise an exit plan for the Chilean carrier.
The airline’s unsecured creditors and a consortium holding billions of dollars in claims complained on Thursday about the lack of progress and asked the court to order mediation. A mediator would facilitate talks about how creditors will be repaid and where existing shareholders fit into that plan.
“It has become abundantly clear that the parties are in fundamental disagreement regarding key legal issues,” Rachael Ringer, a lawyer for a group of Latam creditors, said in court papers. A “massive economic gulf” exists that requires the help of a mediator, said Ringer, whose group included Strategic Value Partners and Sixth Street Partners as of early July.
A key issue is whether Santiago-based Latam’s current shareholders are entitled to anything when the bankruptcy ends. In the U.S., where the bankruptcy is playing out, shareholders are dead last in line for repayment and usually get wiped out. But in Chile, shareholders have certain legal rights that may be at odds with U.S. rules. Latam’s major shareholders include the Cueto family, Delta Air Lines Inc. and Qatar Airways.
The unsecured creditors committee, which also ranks relatively low on the list for repayment but ahead of shareholders under U.S. rules, cried foul last month over the rough outline of a bankruptcy plan circulated among stakeholders.
“In the month that has passed since then, the committee’s concerns have only increased,” Allan Brilliant of the Dechert law firm wrote on behalf of the group. The creditors worry that further extending Latam’s deadline to file an exit plan “may be used simply to pressure creditors to accede to a plan that rewards out-of-the-money shareholders on account of their equity interests at the expense of unsecured creditors,” he said.
The consternation comes in response to Latam’s most recent request to extend a bankruptcy plan deadline. In the U.S., a bankrupt company has the exclusive right to pitch a restructuring plan to creditors for a period determined by the court. Denial of Latam’s most recent request for an extension—the company’s fifth—would mean creditors could float their own plans, upending negotiations and the alliances that form as claimants seek a bigger slice of the company’s assets.
A representative for Latam declined to comment.
The case is LATAM Airlines Group SA et al., 20-11254, U.S. Bankruptcy Court for the Southern District of New York (Manhattan).