Avianca is planning to raise $1.8 billion of exit financing ahead of its anticipated emergence from Chapter 11 bankruptcy protection later this year. The Colombian carrier says in a regulatory filing that it plans to raise $1.8 billion of debt and equity to refinance $1.4 billion of Tranche B debtor-in-possession (DIP) financing obligations, and to provide $400 million of incremental liquidity to meet its target of $1 billion of exit liquidity. "Prior to initiating a competitive process to determine the availability of more attractive equity funding, Avianca is working to negotiate the final terms and conditions for its option to convert $902 million Tranche B DIP obligations into equity," states the airline. "The terms of the exit financing will be determined through mutual agreements between Avianca and the parties whose terms best meet the objectives of the company." The financing will also be subject to approval from the US Bankruptcy Court for the Southern District of New York, which is overseeing Avianca's Chapter 11 process. The carrier points out that, at this stage, it is not possible to know the full extent of its liabilities, or whether third parties, creditors or shareholders will contribute new capital. It also remains uncertain whether the value of Avianca's shares will be diluted, or if the company will be liquidated. "As a result of the foregoing, under the Chapter 11 plan, the shareholders of the company may be diluted, or the value of their shares reduced to zero, due to the decrease in equity of the company attributable to the companies' liabilities to third parties or creditors, as well as the injection of capital by new investors pursuant to the Chapter 11 plan," says Avianca.
The airline notes that it is "well along" in its fleet simplification and cost-reduction programme, which it expects will result in a reduction of more than $2 billion in aircraft debt and leasing obligations during the period from March 2020 to 31 December 2022. It expects its leverage measured as net debt to adjusted EBITBA to drop from 5.8x as of 31 December 2019 to below 3x by the end of 2023. Avianca has retained Seabury Securities as financial and restructuring advisor to raise its exit financing.