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January 19, 2022 – The Ad Hoc Group of OpCo Creditors (see table below for membership) and the Debtors' Official Committee of Unsecured Creditors (the “Committee”) have separately objected to the Debtors’ Plan of Reorganization [Docket Nos. 2491 and 2493, respectively].
The objections are largely similar, with each creditor group claiming that a Plan that they were once willing to support has slipped into the realm of unconfirmability after changes which see shareholding insiders (including Delta Airlines and certain prepetition Mexican shareholders) fattened at the expense of unsecured creditors in what the creditors groups allege is a clear violation of the absolute priority rule. Given the influence of "unchecked, powerful insiders," the creditor groups urge the Court to apply a heightened standard of review is assessing the Plan.
Paraphrasing the Ad Hoc Group of OpCo Creditors, their objection is largely summarized as: "…when a debtor is dominated by conflicted insiders who are incentivized to pursue impermissible ends that are contrary to the purposes of the Bankruptcy Code, the last line of defense is the Bankruptcy Code itself. To ensure that general unsecured creditors are treated fairly and equitably in this case, the Court must enforce the Bankruptcy Code’s protections and safeguards by denying confirmation of the proposed Plan."
The Committee concurs, arguin in its objection that: "...the Committee continues to oppose the Plan due to several significant infirmities—most notably, the improper and inequitable distribution of value to insiders—that impermissibly depress the recoveries of certain general unsecured creditors."
Each group tries to take the edge off of their objection (as the Plan confirmation nears) by arguing that simple (albeit fundamental) fixes exist that would not require resolicitation of the Plan (and a lengthy extension of the Debtors' stay in bankruptcy). The Ad Hoc Group of OpCo Creditors notes that the Plan "can easily be modified to comply with the Bankruptcy Code by striking impermissible distributions to prepetition equity holders, re-allocating the resulting value, and providing equal opportunity for recovery to all general unsecured creditors."
For its part, the Committee argues: "…the Plan as currently constructed is not confirmable, but with certain modifications could be resuscitated and supported by the Committee without the need to resolicit. The Plan is the product of a flawed process whereby the Debtors abdicated their fiduciary duties and allowed a group of sophisticated creditors to negotiate directly with the Debtors’ insider prepetition shareholders….if shareholders want to maintain equity interests under the Plan, they must contribute market value."
On December 10, 2021, the Debtors filed their Third Revised Plan and a related Disclosure Statement [Docket No. 2285 and 2286, respectively]; with the Disclosure Statement approved for solicitation on that same date. The Debtors' Plan confirmation hearing, initially scheduled for January 18th is now slated to begin on January 27th.
Ad Hoc Group of OpCo Creditors Objection
The Ad Hoc Group of OpCo Creditors objection [Docket No. 2491] reads: “The Plan as presently constructed demonstrates how, when left unchecked, powerful insiders (incentivized to preserve their substantial ownership interests) can partner with a select number of professional investors to engineer a restructuring that shifts value away from general unsecured creditors to themselves. To guard against this type of conflict of interest, drafters of the Bankruptcy Code included important statutory protections for general unsecured creditors. Put simply, when a debtor is dominated by conflicted insiders who are incentivized to pursue impermissible ends that are contrary to the purposes of the Bankruptcy Code, the last line of defense is the Bankruptcy Code itself. To ensure that general unsecured creditors are treated fairly and equitably in this case, the Court must enforce the Bankruptcy Code’s protections and safeguards by denying confirmation of the proposed Plan.
The Plan fails to satisfy several basic requirements of the Bankruptcy Code.
First, the Plan violates Bankruptcy Code section 1123(a)(4) by not providing the same opportunity for recovery to all general unsecured creditors of the same class.
Second, the Plan violates Bankruptcy Code section 503(c)(1) by providing for impermissible transfers of value to certain members of the Debtors’ board of directors for the purpose of inducing their continued board service.
Third, the Plan is not confirmable as it provides for distributions to prepetition equity holders while general unsecured creditors are significantly impaired.
Fourth, the Plan fails to satisfy Bankruptcy Code section 1129(a)(10) to the extent it has not been accepted by at least one class of impaired creditors at each Debtor.
Fifth, the Plan impermissibly provides certain creditors with more than full consideration for their claims.
Sixth, the Plan constitutes a settlement curated by current equity holders and insiders, which requires the Debtors to prove that the Plan satisfies the entire fairness standard—which they cannot.
The Ad Hoc Group of OpCo Creditors’ goal is and has always been fair distributions and equal opportunity for recovery for all operating company general unsecured creditors, as required by the Bankruptcy Code. Throughout the plan negotiation process, members of the Ad Hoc Group of OpCo Creditors supported proposals that provided fair value to general unsecured creditors and a significantly greater allocation of the estates’ value than is provided under the current Plan. But that value allocation evaporated in the final stages of plan negotiations, resulting in the Plan now before the Court, which distributes almost [Sealed]% of the estates’ value—more than $[Sealed]million—to insiders in exchange for illusory, speculative value, while general unsecured creditors suffered a nearly dollar-for-dollar decline in their expected recoveries. The process that led to this result was so dominated by insiders that the Court must analyze it with heightened scrutiny. It is the Debtors’ burden to prove that the value to be transferred to insiders and the process that led to the Plan are ‘entirely fair’ to general unsecured creditors. Where the Debtors failed to ensure fairness and compliance with the Bankruptcy Code, this Court must step in Importantly, denial of confirmation need not send the Debtors back to square one, or even cause significant delay. Rather, the Plan can easily be modified to comply with the Bankruptcy Code by striking impermissible distributions to prepetition equity holders, re-allocating the resulting value, and providing equal opportunity for recovery to all general unsecured creditors. However, as it stands, the Plan cannot be confirmed.”
As of November 24, 2021, the Ad Hoc Group of OpCo Creditors was composed of the following entities, with notes as to the below table available at Docket No. 2179.
Creditors’ Committee Objection
The Committee’s objection [Docket No. 2493] reads: “By now, the Court is well aware that the Committee does not support the Plan and, as a fiduciary representing the interests of all of the Debtors’ general unsecured creditors, recommended that holders of certain unsecured claims vote to reject the Plan. Although the Committee has worked in good faith to support the Debtors and has tried to resolve its objections, the Committee continues to oppose the Plan due to several significant infirmities—most notably, the improper and inequitable distribution of value to insiders—that impermissibly depress the recoveries of certain general unsecured creditors.
As explained below in more detail, the Plan as currently constructed is not confirmable, but with certain modifications could be resuscitated and supported by the Committee without the need to resolicit. The Plan is the product of a flawed process whereby the Debtors abdicated their fiduciary duties and allowed a group of sophisticated creditors to negotiate directly with the Debtors’ insider prepetition shareholders. At no point, either before or during those negotiations, did the Debtors make clear what should be obvious: if shareholders want to maintain equity interests under the Plan, they must contribute market value.
As a result, the creditors that ultimately negotiated the Plan and the insider shareholders stand to enjoy enormous recoveries, while the general unsecured creditors that were excluded from the negotiations will foot the entire bill. The Debtors will try to convince the Court that it should confirm the Plan without question because the voting report reflects that all classes of unsecured creditors (other than Aerovías Empresa de Cargo, S.A. de C.V. (‘Aeroméxico Cargo’)) voted in favor of the Plan. But the voting report must be closely scrutinized, especially because the settlement embodied in the Plan must satisfy the heightened scrutiny/entire fairness standard applicable to transactions with insiders.
The Court must consider the following key facts in conducting this analysis. First, the vast majority of the actual votes in favor of the Plan (approximately 55% of classes 3(b) and 3(c)) came from creditors that were already obligated to vote in favor, either because they were invited to the negotiating table and are receiving special benefits or were obligated to vote in favor of a so-called ‘Complying Plan’ before they had a chance to see the actual Plan (or an approved Disclosure Statement)––or even have a basic understanding of it.
Second, the Debtors specifically targeted key creditors with calls pressuring them to vote in favor of the Plan due to longstanding relationships and hopes of doing future business.
Third, the Debtors were able to use a procedural loophole to value unliquidated claims at $1 for voting purposes, even though the Debtors know that the class of general unsecured creditors at Debtor Aerolitoral, S.A. de C.V. (‘Aeroméxico Connect’) would have voted to reject the Plan if the Debtors counted votes using their own lowend estimates of the value of allowed claims at Aeroméxico Connect.
Finally, the few remaining general unsecured creditors that actually voted on the Plan were faced with a Hobson’s choice when presented with a ballot: vote ‘yes’ to support the Debtors’ restructuring, which results in an unfairly low recovery for them, or vote ‘no’ and possibly endure the parade of horribles the Debtors allege would result if the Plan were rejected—including a plan with even lower recoveries for them than the one on file.
Most troubling is that, prior to the January 7, 2021 voting deadline, most creditors had not had the opportunity to fully understand the damning record that the Committee uncovered through discovery and that will be on display at the confirmation hearing. Nonetheless, the Debtors will flaunt the voting report as a huge success that enables the Debtors to argue that the absolute priority rule does not apply to the Plan. Given the overly generous distributions to insider shareholders on account of illusory future services to be provided, the Court must recognize that the absolute priority rule surely dooms the Plan as a matter of law.
Further, the Court must consider the implications of the fiduciary body representing general unsecured creditors objecting to the Plan. Even with a supporting vote, however, for the reasons set forth below, the settlement embodied in the Plan still fails to meet the heightened scrutiny/entire fairness standard applicable to transactions with insiders. As a result, the Committee, as a fiduciary for all unsecured creditors, proceeds with this Objection in order to hold the Debtors to the confirmation standards set forth in the Bankruptcy Code and to ensure fairer and more equitable treatment of all unsecured creditors under the Plan. Respectfully, the Court should deny confirmation. At a minimum, the Plan does not meet the good faith standard required by section 1129(a)(3) of the Bankruptcy Code. Moreover, the Plan fails to meet the heightened scrutiny/entire fairness standard that applies because the Debtors propose to sell Grupo Aeroméxico’s reorganized equity in exchange for new capital and to distribute approximately 10% of such reorganized equity, with a value of approximately $255 million, to key insider parties over and above the amount invested or being invested by them, with such value coming primarily out of the recoveries of the Debtors’ operating subsidiary creditors.’
The Committee’s objection continues, “Specifically, the Plan proposes to distribute reorganized equity with a value of approximately $170 million to Delta Airlines, Inc. (‘Delta’), a substantial prepetition shareholder with two representatives on Grupo Aeroméxico’s board of directors (the ‘Board’), merely for performing services that are [Sealed Part]. In reality, the record is clear that the proposed services agreement is a construct not intended to meet any operating needs but instead designed to allow Delta to obtain its desired equity stake in reorganized Grupo Aeroméxico at the price it unilaterally determined it was willing to pay for such equity. In addition, the Plan proposes to distribute reorganized equity with a value of approximately $85 million to four individual Mexican prepetition shareholders (the ‘Insider Mexican Shareholders,’ and together with Delta, the ‘Insiders’) who, along with four family members, collectively control eight of the fifteen seats on the Board, simply for performing services that they are currently providing as Board members and are required to perform pursuant to Grupo Aeroméxico’s bylaws (the ‘Bylaws’) and/or in accordance with their fiduciary duties under Mexican law, as described in detail in the León Orantes Declaration.
Amazingly, neither the Debtors, the Insider Mexican Shareholders, nor any other Plan party even attempted to perform a valuation of these services to justify the proposed distribution. In short, none of the purported services to be rendered by the Insiders are ‘new,’ and the Debtors have made no showing whatsoever that any real value, much less reasonably equivalent value, is being provided by the Insiders in exchange for the approximately $255 million of reorganized equity proposed to be distributed to them under the Plan. The case law governing settlements with insiders makes clear that any such settlement requires at least such a showing. The Debtors’ failure to present that evidence thus fatally dooms the Plan.
Further compounding the unjustified distributions to the Insiders under the Plan is the vastly disparate treatment proposed for holders of unsecured claims against parent Grupo Aeroméxico as compared with holders of unsecured claims against the Debtors’ operating subsidiaries: Aerovías de México, S.A. de C.V. (‘Aerovías’), Aeroméxico Connect, and Aeroméxico Cargo. Under the Plan, creditors that hold claims against Aerovías with a guarantee from Grupo Aeroméxico (which includes the Noteholder Investors) are receiving par recoveries under the Plan, regardless of the ultimate distributions to creditors of each of those estates. The negotiations that culminated in the Plan thus ensured that creditors holding claims against Aerovías with a Grupo Aeroméxico guarantee would receive par recoveries regardless of what gifts they ultimately gave to the Insiders to gain their support. Because the par distribution to these creditors permitted them to make the Insider distributions without suffering any dilution, it is inextricably tied to the Insider distributions and must therefore be judged under the same heightened scrutiny/entire fairness standard. In analyzing whether certain of the Debtors’ unsecured creditors are entitled to a 100% recovery, while other unsecured creditors only receive pennies on the dollar, the Court must closely scrutinize the Debtors’ approximately $800 million valuation of Grupo Aeroméxico’s owned trademarks, associated domain names, and other intellectual property (the ‘GAM IP’). The Committee respectfully submits that the value the Debtors have ascribed to the GAM IP is based on flawed assumptions—[Sealed Part]. These cases are undoubtedly complicated and the Committee recognizes that it is in all stakeholders’ interests for the Debtors to emerge from chapter 11 expeditiously. For these reasons, the Committee has attempted to play a constructive role in plan negotiations throughout the cases and previously supported plan proposals that contained similar distributions to the Insiders as proposed in the Plan. But critically, those proposals also provided general unsecured creditors of the Debtors’ operating subsidiaries with significantly higher recoveries as compared to the Plan. Under those distinct circumstances, where all general unsecured creditors would have been fairly treated, the Committee was willing to tolerate certain distributions to the Insiders in the name of a consensual restructuring transaction. The Plan, however, allocates value to the Insiders without providing a fair recovery for all of the Debtors’ general unsecured creditors. Unless additional value is properly allocated for the benefit of general unsecured creditors of the Debtors’ operating subsidiaries, the Committee is left with no choice but to prosecute this Objection and respectfully requests that the Court deny confirmation of the Plan.”
On December 10, 2021, the Debtors filed their Third Revised Plan and a related Disclosure Statement [Docket No. 2285 and 2286, respectively].
In a press release, heralding approval of the Disclosure Statement, the Debtors state: “[t]he Bankruptcy Court has entered an order approving the Disclosure Statement with respect to the Joint Plan of Reorganization for Aeroméxico….The foregoing represents another key milestone in the Company’s restructuring process. Aeroméxico will continue working with all of its key stakeholders to obtain Court approval of the Plan and emerge from Chapter 11 as expeditiously as possible."
Not noted in the press release, but otherwise featuring prominently amongst amendments to the Disclosure Statement, is the current impasse with the Debtors' official committee of unsecured creditors (the "Committee"); with the Disclosure Statement now including a synopsis of the Committee's December 2nd objection to proposed exit financing arrangements and the "inherently flawed" Plan [Docket No. 2233]. The Committee argues: "In sum, the Committee believes that the Plan does not reflect the fair market value of the Debtors due to the Debtors’ flawed exit financing process (which, among other issues, baselessly favors certain insiders whose support is not necessary to confirm a chapter 11 plan). Moreover, the Committee believes that the Plan is plagued with confirmation issues including, without limitation, that it (a) fails to meet the strict ‘heightened scrutiny’ and ‘entire fairness’ standard due to the Debtors’ transactions with insiders and (b) violates the absolute priority rule by making distributions to those insiders for inadequate or no consideration."
The amended Disclosure Statement also summarizes the Debtors' reply [Docket No. 2247], with the Debtors "strongly disgareeing" with the Committee's stance and noting that the "Debtors have concluded after extensive analysis that a viable alternative plan for the Debtors to successfully emerge from chapter 11 at this time simply does not exist."
On June 30, 2020. Grupo Aeroméxico, S.A.B. de C.V. and three affiliated Debtors (BMV: AEROMEX; “Aeroméxico” or the “Debtors,” the holding company for Mexico’s largest airline and 51.3% owned by Delta Airlines, Inc.) filed for Chapter 11 with estimated assets between $1.0bn and $10.0bn; and estimated liabilities between $1.0bn and $10.0bn (funded debt of almost $2.1bn, see chart below).
Aeroméxico was the third Latin American airline to file for Chapter 11 protection in a short span, with Colombia’s flag carrier Avianca Holdings SA filing for chapter 11 on May 10th (NYSD: 20-11133) and Chile’s Latam Airlines Group SA following suit two weeks later (NYSD: 20-11254). In each case, the debtors cited the near complete cessation of activities resulting from the COVID-19 pandemic as the catalyst for the Chapter 11 filings. Also true, however, was that each airline arrived at Chapter 11 with similar pre-existing conditions: fleet and debt structures that were unsustainable…with Chapter 11 offering a solution to this “too many planes” problem through the rejection of onerous contractual relationships and the enhanced negotiating strength that accompanies that ability to reject.
The Solicitation Disclosure Statement [Docket No. 2294] provides the following unchanged overview: “As part of the restructuring:
- The Debtors performed a robust market-check to determine the value of the Reorganized Debtors. As a result, the Debtors received multiple exit financing proposals from various creditors, groups of creditors and third-party investors. In fact, the Debtors and their advisors spent the past several months negotiating with the various exit financing proponents, the Creditors’ Committee, Delta and certain Mexican Investors so that the Debtors could emerge from these Chapter 11 Cases positioned for long-term success, while also maximizing recoveries for all creditors.
- The Board of Directors authorized the Company to proceed with the Apollo-Creditor Exit Financing Proposal (as defined below) based on the advice from all of its restructuring advisors, as it contemplates the greatest recovery to the Debtors’ creditors, has the broadest creditor support and, importantly, is fully implementable.
- As more fully explained in Article IV below, the Apollo-Creditor Exit Financing Proposal will provide the Reorganized Debtors with $720 million of new equity capital through the issuance of new equity and up to $762.5 million of new debt capital through the issuance of senior secured first lien notes. The Apollo-Creditor Exit Financing Proposal is the best available source of liquidity for the Debtors to repay the Tranche 1 DIP Loan and any portion of the Tranche 2 DIP Loan that is not converting into reorganized equity, convert the already invested Tranche 2 DIP Loan into reorganized equity, maximize creditor recoveries, sustain ongoing operations and emerge successfully from chapter 11 with sufficient capital.
- The proceeds of the Equity Financing and Debt Financing (collectively, the ‘Exit Financing’) will be used to, among other things, (i) repay the Tranche 1 DIP Facility, (ii) fund a $150 million cash payment to Apollo to, in part, discharge Tranche 2 DIP Facility Claims, (iii) fund a cash payment of $450 million to unsecured creditors, and (iv) finance the PLM Stock Participation Transaction, if consummated.
- As discussed in greater detail below, the Plan authorizes (but does not require the Debtors to consummate) the PLM Stock Participation Transaction, pursuant to which PLM would become a wholly-owned subsidiary of Grupo Aeroméxico. In addition, the Plan provides for the Debtors’ assumption of the Club Premier Agreements. If the Company elects to consummate the PLM Stock Participation Transaction, the Exit Financing provides $375 million in financing to fund such transaction.
- Holders of General Unsecured Claims are entitled to vote and receive, depending on the Debtor or Debtors against whom such Holder has a Claim or Claims, New Stock or Cash (or in certain circumstances a combination thereof) under the Plan. If confirmed and consummated, the Plan will provide Holders of:
- Aerovías and Grupo Aeroméxico Recourse Claims against Aerovías and Grupo Aeroméxico an aggregate recovery of 100%
- General Unsecured Claims against Grupo Aeroméxico a projected recovery of between approximately 84% to 85%;
- General Unsecured Claims against Aerovías with a projected recovery of between approximately 16% to 15%;
- General Unsecured Claims against Aeroméxico Connect with a projected recovery of between approximately 3% to 3%; and
- General Unsecured Claims against Aeroméxico Cargo with a projected recovery of 17% – 16%.
- Holders of Unsecured Convenience Class Claims are entitled to vote and receive, depending on the Debtor or Debtors against whom such Holder has a Claim or Claims, Cash under the Plan. If confirmed and consummated, the Plan will provide Holders of:
- Unsecured Convenience Class Claims against Grupo Aeroméxico a projected recovery of between 100%;
- Unsecured Convenience Class Claims against Aerovías a projected recovery of between approximately 30% to 29%;
- Unsecured Convenience Class Claims against Aeroméxico Connect a projected recovery of between approximately 30% to 29%;
- Unsecured Convenience Class Claims against Aeroméxico Cargo a projected recovery of between approximately 30% to 29%.
- Aeroméxico has been able to leverage the chapter 11 process to effectively transform its businesses and simplify its balance sheet. As contemplated by the Plan, the Company will eliminate approximately $1.1 billion of debt from the Debtors’ consolidated balance sheet. At the same time, as a result of its reorganization Grupo Aeroméxico has improved the customer experience and expects to emerge from bankruptcy as a strong, competitive and global airline that continues to connect Mexico with the world. In particular, Aeroméxico expects to be the airline of choice for business and leisure customers by offering a best-inclass customer experience on the ground and in the air. Aeroméxico expects to remain focused on maintaining the competitive cost structure it has obtained through its reorganization in order to improve its financial position and pursue long-term stability and growth.”
On November 11th (U.S. press release dated the 12th), Aeroméxico announced that it had: “received a joint proposal (the ‘Alliance Proposal’) from its lenders under Tranche 2 of our DIP financing facility [i.e., Apollo] and from certain existing creditors and new money investors with whom the Company was prepared to enter into commitment papers upon court approval thereof. The Alliance Proposal has the support of our strategic partner Delta Air Lines and provides an implementable solution, through a solid group of long-term Mexican investors, to comply with foreign ownership requirements. The Board of Directors of the Company has approved, among other matters, instructing the Company’s restructuring advisors to prepare, in coordination with advisors for the key stakeholders, a revised version of the Chapter 11 Joint Plan of Reorganization (the ‘Plan’) and the disclosure statement with respect to the Plan (the ‘Disclosure Statement’), including any supplements and exhibits related thereto, reflecting the terms of the Alliance Proposal.”
As proposed, the Plan would leave the “Equity Financing Commitment Parties,” Apollo, Delta and the Mexican Investors with 26.9%, 22.38%, 20.0% and 4.1%, respectively, of the emerged Debtors new common stock. The Equity Financing Commitment Parties (ie Delta, the BSPO Investors, the Noteholder Investors, the Claimholder Investors, the Mexican Investors and any parties to the Debtors’ “Equity Financing Commitment Letter”) are in line for a 15% “Equity Commitment Premium” based on their contributions to the $720.0mn of equity financing. Apollo is also in line for “(i) $150 million in cash and (ii) accrued interest under the DIP Credit Agreement at the Applicable Margin (as defined in the DP Credit Agreement) of 14.5% on the outstanding obligations to Apollo under the Tranche 2 DIP Facility commencing December 31, 2021 through the Effective Date, payable in Cash.”
The Debtors’ aspirations for the amended Plan (and its proposed exit financing) are somewhat complicated by the November 26th filing [Docket No. 2178] of an objection to that exit financing by an ad hoc group of OpCo creditors (the “Ad Hoc Group,” comprised of Invictus Global Management, LLC, Corvid Peak Capital Management LLC, Hain Capital Group, LLC and Livello Capital Management LP and holding in aggregate an estimated $131.0mn of debt [Docket No. 2179]) which argues that its own alternative exit financing proposal “provides a consensual path towards exiting chapter 11 while at the same time distributing value fairly across the capital structure, including to fulcrum general unsecured claims holders (‘GUC Holders’) and increasing plan value by $450 million…[and] leaves unaltered the negotiated economic rights of certain key parties (Delta, Apollo, and significant Mexican shareholders) and provides markedly improved recoveries for the fulcrum class of GUC Holders — i.e., increasing the recovery range from 14-14.5% to up to 29-31%.” The objection attaches a comparison chart and the November 21st alternative exit term sheet that the Ad Hoc Group shared, without result, with the Debtors.
Exit Financing Outcome
The Disclosure Statement now provides: "After many months of tireless negotiations, on November 11, 2021, the Debtors received a joint proposal from Apollo, certain members of the Ad Hoc Group of Senior Noteholders and the BSPO Investors. Further, on November 19, 2021, the Debtors filed the Supplement to Debtors’ Exit Financing Motion and Notice of Filing of Revised Equity and Debt Commitment Letters [ECF
No. 2168] (the ‘Revised Exit Financing Documents’), which provides for exit financing (the ‘Apollo-Creditor Exit Financing Proposal’) from certain members of the Ad Hoc Group of Senior Noteholders, the BSPO Investors, Apollo, certain members of the Unsecured Claimholders Group, certain other holders of unsecured claims, the Mexican Investors and Delta. The Debtors’ Board of Directors elected to proceed with the Apollo-Creditor Exit Financing Proposal as the basis for the Plan since it is executable, provides robust creditor recoveries and ensures the highest likelihood of a timely exit from bankruptcy. Broadly, the Apollo-Creditor Exit Financing Proposal will provide for, among other things, the following:
- Electing Tranche 2 DIP Lenders will convert their Tranche 2 DIP Facility Claims into New Stock.
- The DIP Credit Agreement Amendment that, among other things, permits the proposed restructuring on the terms set forth in the Term Sheet annexed to the Equity Financing Commitment Letter and amends the Milestones (as defined in the DIP Credit Agreement) under the DIP Credit Agreement to the extent necessary to comply with the timeline as set forth in the Term Sheet.
- New equity commitments of $720 million of new equity (the ‘Equity Commitments’).
- The Equity Financing Commitment Parties (other than Delta and the Mexican Investors), Apollo, Delta and the Mexican Investors shall receive 26.9%, 22.38%, 20.0% and 4.1%, respectively, of the New Stock on the Effective Date (in each case subject to the Specified Dilution).
- New debt commitments to purchase New First Lien Notes in the aggregate principal amount of up to $762.5 million (the ‘Exit Debt Commitments’); provided, however, that certain Debt Financing Commitment Parties and/or other third party investors may provide alternative exit debt financing in lieu of the Exit Debt Commitments contemplated by the Debt Financing Commitment Letter through a syndication expected to be arranged by JPMorgan on terms reasonably satisfactory to the Debtors, the Required Equity Commitments Parties, Delta and Apollo (such exit financing, if applicable, the ‘Alternative Exit Debt Financing’).
- In connection with the commitment to purchase the New First Lien Notes, the Debt Financing Commitment Parties are entitled to a commitment premium (the ‘Debt Commitment Premium’ and, together with the Equity Commitment Premium, the ‘Commitment Premiums and Fees’) payable to such Debt Financing Commitment Parties in cash, equal, in the aggregate to 1.0% of the Exit Debt Commitments. Further, the Debtors are responsible for the payment in cash of all reasonable fees and reasonable documented out-of-pocket expenses of the Debt Financing Commitment Parties and their professionals, in each case as set forth in the Debt Financing Commitment Letter (the ‘Debt Commitment Party Expense Reimbursement’). Finally, the Debt Financing Commitment Letter contains certain customary indemnification provisions.
- The payment of certain fees and expenses as set forth in the Debt Financing Commitment Letter and the Equity Financing Commitment Letter as approved by, and on terms set forth in, the Exit Financing Commitment Order.
- Apollo shall receive on the Effective Date, in addition to its allocation of New Stock, (i) $150 million in cash and (ii) accrued interest under the DIP Credit Agreement at the Applicable Margin (as defined in the DP Credit Agreement) of 14.5% on the outstanding obligations to Apollo under the Tranche 2 DIP Facility commencing December 31, 2021 through the Effective Date, payable in Cash.
- Finally, the Equity Financing Commitment Letter and Subscription Agreement contain certain customary indemnification provisions.
The Apollo-Creditor Exit Financing Proposal also provides that the Equity Financing Commitment Parties will receive, in aggregate, 15.0% of the Committed Equity Amount, payable in New Stock on the Effective Date (the ‘Equity Commitment Premium’) in exchange for their Equity Commitments."
About the Debtors
Accpording to the Debtors: "Grupo Aeromexico, S.A.B. de C.V. is a holding company whose subsidiaries are engaged in commercial aviation in Mexico and the promotion of passenger loyalty programs. Aeromexico, Mexico’s global airline has its main hub at Terminal 2 at the Mexico City International Airport. Its destinations network features the United States, Canada, Central America, South America, Asia and Europe. The Group's operating fleet of 119 aircraft is comprised of Boeing 787 and 737 jet airliners and Embraer 170 and 190 models. Aeromexico is a founding member of the SkyTeam airline alliance, which celebrated its 20th anniversary, and serves in 170 countries by the 19 SkyTeam airline partners. Aeromexico created and implemented a Health and Sanitization Management System (HSMS) to protect its customers and employees at all steps of its operations."
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