November 2, 2021 – The Court hearing the LATAM Airlines Group S.A. cases has extended (for a fifth time) the periods during which the Debtors have an exclusive right to file a Chapter 11 Plan, and solicit acceptances thereof, through and including November 26, 2021 and January 26, 2022, respectively [Docket No. 3485]. Absent the requested relief, the Plan filing and solicitation periods were scheduled to expire on October 15, 2021 and December 15, 2021 respectively.

The November 26th date marks 18 months from the Debtors' Chapter 11 filings…and also the statutory limit in respect of an exclusive Plan filing period. As it stands, with little apparent movement towards a consensual Plan (exit financing and a fundamental clash amongst Chilean and U.S. legal systems as to the relative treatment of equity and debt…topping a lsit of major hurdles), the Debtors' exclusive Plan filing period is likely to expire on November 26th and the pressure on the Debtors' to consider third-party Plans and/or mediate will intensify.

In a "statement" (but not objection), the Debtors' Official Committee of Unsecured Creditors [Docket No. 3392] note that the looming November 26th outside date is the reason that they did not file a formal objection to the fifth exclusivity extension. The statement nonetheless sets out the Committee's concerns, noting that: "The Debtors have had the privilege of nearly seventeen months of exclusivity, yet they have not reached any consensual plan that is acceptable to their creditors or compliant with the Bankruptcy Code. The Committee believes that the Debtors’ process has not resulted in more progress toward a confirmable plan due in large part to the Debtors’ insistence on having a plan that is acceptable primarily to its majority shareholders and its failure to engage in a broad marketing initiative for exit financing. Unless the Debtors change course, the Committee doubts that the additional time the Debtors request will be used productively to advance these cases.

…the Committee submits (and reserves the right to formally request by motion if necessary) that (1) the Debtors should be required to conduct a broader marketing process for their exit financing (including to parties not currently invested in the Company’s debt or equity) in consultation with the Committee, and (2) the Debtors should be directed to engage in mediation with (a) the Committee and its principal creditor groups on the structure and content of a Chapter 11 Plan that may be confirmed with or without the consent of the majority shareholders, and (b) the Debtors and the appropriate creditor parties on the purported intercompany claims with respect to the LATAM 2024 and 2026 Bonds guaranteed by LATAM and issued by LATAM Finance."

In a separate (actual) objection filed by the Parent Ad Hoc Claimant Group (the “Parent Ad Hoc Group”)  [Docket No. 3394], the Parent Ad Hoc Group (which claims to hold "$4 billion in allowed and/or asserted general unsecured claims against LATAM Parent and approximately $740 million in LATAM Finance Bonds") insists that any further exclusivity extension be "accompanied by an order directing the parties to mediation on certain gating shareholder-related issues that have posed an impediment to the proposal of a consensual chapter 11 plan."

In their objection, the Parent Ad Hoc Group notes: "Though the Parent Ad Hoc Group has engaged extensively with representatives of the Debtors, the majority insider shareholders, and other key parties in interest – and made and received various proposals from the Debtors and other stakeholders – the Debtors are still far away from having a consensual, confirmable plan to present to the Court. There remain fundamental disagreements between the stakeholders, particularly with respect to the nature of shareholder rights afforded under Chilean non-bankruptcy law and the extent to which any such rights can be enforced in a chapter 11 case – particularly where such enforcement would violate core tenets of the Bankruptcy Code. 

The majority insider shareholders evidently believe that alleged rights supposedly given to them under Chilean law should trump the Bankruptcy Code and elevate them to a position of priority over unsecured creditors. The Parent Ad Hoc Group finds no support for this position, whether under Chilean law or – far more importantly – under the Bankruptcy Code. This issue has handcuffed the Debtors’ ability to make progress on a confirmable plan.

If the Court is not inclined to order mediation, the Parent Ad Hoc Group asks that exclusivity be terminated at this point on only a limited basis, permitting the Parent Ad Hoc Group to file a plan alongside the Debtors."

For now, the Court has declined to compel further mediation (earlier mediation amongst the Debtors and the Committee relating to the Committee's standing motions having failed) as a condition for extending the exclusivity periods, but clearly further mediation remains a high probability, with the Debtors apparently willing to take that step…but not now and not as a condition for a last (short) Plan filing exclusivity extension. The Debtors argue as to postponing further mediation [Docket No. 3419]: "The progress made thus far also underscores the reasonableness of the Debtors’ preference for an initial round of direct negotiation between the parties as a predicate to engaging the services of a mediator, in contrast to the Parent Ad Hoc Claimant Group’s misleading suggestion that the Debtors have somehow flatly refused to consider mediation….the Debtors have no opposition to engaging in a streamlined mediation process to determine whether the relevant parties’ current disputes can be resolved or narrowed to the extent the parties refuse to advance discussions otherwise.

Although the Debtors have now proposed a framework for mediation, the success of that process will depend on the willingness of all parties to actively participate in the process, including to compromise and work constructively toward consensus. In the absence of that commitment, the risk is too great that mediation will simply be a rehash of the parties’ prior negotiation and will serve as a prelude to value destructive litigation that would only serve to harm all the Debtors’ stakeholders….The Debtors are hopeful that the ongoing discussions regarding the timing and nature of further mediation will conclude shortly, and that the resulting mediation will be conducted expeditiously and in good faith by all constituents involved. Given the ongoing nature of those discussions, the Debtors submit it would be premature for any one party to unilaterally propose or dictate the timing or scope of any mediation…”

In the period since the Debtors filed their requesting motion (October 14th [Docket No. 3363]), the Debtors did, however, take one major step forward in their Plan filing aspirations; with an October 18th Court order authorizing the Debtors to access $750.0mn of Tranche B debtor-in-possession (“DIP”) financing on a final basis [Docket No. 3378]. As previously reported, the financing, provided by Oaktree Capital Management, L.P and Apollo Management Holdings, L.P. (NB: Oaktree and Apollo are already DIP Lenders of record in respect of approximately 97% of Tranche A) comes with significantly reduced borrowing costs.

The Requesting Motion

Although cautiously optimistic that recent meaningful negotiations may place them in a position to "file a plan of reorganization in the coming weeks," the Debtors used the motion to remind the stakeholders with whom they are negotiating a preferred global settlement that the are entering a "crucial end stage;" an inflection point at which they will either file "a plan with the support and participation of their various stakeholders or, to the extent such global resolution is not possible, to propose a plan that the Debtors determine is the best path forward."

The extension motion explained, “The Debtors have made good use of the recent exclusivity extension request granted by the Bankruptcy Court at the end of September. In the last few weeks, the Debtors have engaged with their major stakeholder constituents in discussions and negotiations regarding the terms of potential exit and plan structures. Indeed, representatives of the Debtors and certain stakeholders attended multiple in-person meetings to facilitate such discussions. Further, the Debtors have received and responded to various plan and exit financing proposals and have provided feedback that has led to amended proposals from different stakeholders. The Debtors believe that all parties can benefit from further discussion and collaborative work to develop plan and exit financing terms. These efforts will advance the Debtors’ ultimate goal of crafting a plan of reorganization that can be proposed on a consensual and widely supported basis, confirmed by the Bankruptcy Court and globally implemented in furtherance of a smooth and prompt emergence from these Chapter 11 Cases.

The Debtors are focused on being able to file a plan of reorganization in the coming weeks. That said, the discussions over the last few weeks have been the first time the Debtors have been able to engage with stakeholders over the proposals received and, as such, the Debtors need additional time to finalize their discussions, as well as to determine if additional progress can be made in the coming weeks, in the hope of filing a plan with the support and participation of their various stakeholders or, to the extent such global resolution is not possible, to propose a plan that the Debtors determine is the best path forward. At this crucial end stage of the Chapter 11 Cases, granting other parties the right to file competing plans would upend the negotiation dynamic and imperil the orderly process the Debtors have devoted significant time and resources to establishing and carrying out. Consequently, extending the Exclusivity Periods as requested herein will allow the Debtors to continue and ultimately conclude their discussions without the risk of significant disruption, which ultimately will inure to the benefit of the Debtors’ estates and all parties-in-interest.”

About the Debtors

LATAM Airlines Group is a Chilean-based airline holding company formed through the business combination of LAN Airlines S.A. of Chile and TAM of Brazil in 2012. Following the combination, LAN Airlines S.A. became “LATAM Airlines Group S.A.” and TAM S.A. continues to exist as a subsidiary of LATAM. The Company is primarily involved in the transportation of passengers and cargo and operates as one unified business enterprise. During 2016, we began the transition of unifying LAN and TAM into a single brand: LATAM.

LATAM’s airline holdings include LATAM and its affiliates in Chile, Peru, Argentina, Colombia and Ecuador, and LATAM Cargo and its affiliate LANCO (in Colombia), as well as TAM S.A. and its affiliates TAM Linhas Aereas S.A (LATAM Airlines Brazil), TAM Transportes Aereos del Mercosur S.A., (LATAM Airlines Paraguay) and LATAM Cargo. LATAM is a publicly traded corporation listed on the Santiago Stock Exchange (“SSE”), the Chilean Electronic Exchange and the New York Stock Exchange (“NYSE”) with a market capitalization of US$4.12 billion as of February 29, 2020.

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