SAO PAULO (Reuters) - A $2.45 billion loan proposal for bankrupt LATAM Airlines (LTM.SN) by Oaktree Capital Management LP and the airline’s shareholders has run into opposition from creditors, who say the debt package is too expensive.
The creditors filed an objection on Thursday to the debtor-in-possession (DIP) loan in U.S. Bankruptcy Court in Manhattan, where LATAM filed for Chapter 11 creditor protection in May, according to court documents seen by Reuters.
“The consequence is an overall proposed DIP facility that is too large, too expensive and not supported by a fair and adequate marketing process,” a committee representing the carrier’s unsecured creditors said in the document.
The creditors said LATAM should have explored cheaper loans. They also questioned whether LATAM needed all of the $2.45 billion in debt, noting that its advisors recommended $2.15 billion in financing to continue its operations.
They also said Oaktree and the other DIP lenders would get the right to convert their debt into equity at an implied 32% discount when LATAM emerges from bankruptcy.
After LATAM secured an initial $900 million in financing from shareholders Cueto Group and Qatar Airways, it said it was aiming to raise up to $2.45 billion to support operations.
It then announced the $1.3 billion financing from Oaktree in July, together with an additional potential $250 million that would come from other shareholders.
The unsecured creditors also asked the court to block an additional tranche of financing that could come from government support, given there was no such loan currently on the table.
LATAM is seeking to restructure $18 billion in debt. It was the world’s largest airline to date to seek an emergency reorganization due to the pandemic.
Both the airline and Oaktree did not immediately respond to a request for comment.
Reporting by Carolina Mandl, in Sao Paulo; additional reporting by Jonathan Stempel in New York; editing by John Stonestreet