Avianca Holdings SA has halted principal payments on some loans while it negotiates with creditors to “re-profile” its obligations, according to its chief financial officer.
The Bogota-based carrier in late June decided to defer payments and has been working with dozens of creditors for so-called standstill agreements, according to CFO Adrian Neuhauser. This would give the airline a hiatus of three to six months, depending on the type of credit, he said.
Debts include bank loans and aircraft lease agreements, and the plan will affect about $270mn in payments over coming months. The company continues to make interest payments, he said.
The airline yesterday said it will launch a debt exchange offer for $550mn in notes due in May. It remains current on interest payments to bond holders, Neuhauser said.
“We’ve met with over 60 creditors, crafted a new plan, and shown them why that creates a very quick profit and turnaround and explained to them why we need them to accept these defaults we’ve put in place,” he said in a telephone interview. “We’ve had very positive discussions with the creditors and we’re seeing strong support.”
The agreements are intended to give the embattled airline breathing room as its new management team puts in place a turnaround plan focused on reducing debt by cutting routes, delaying orders for new planes and selling some non-core assets.
Avianca’s shares and bonds have rallied in recent weeks as investors grow more confident in the airline’s future and the company forges stronger links to United Airlines Holdings Inc.
Neuhauser described the strategy as a return to basics, with a focus on using Bogota as its hub. The company hired Seabury Consulting, which specialises in airline turnarounds, to help draft the plan.
Shares have rallied more than 35% over the last two months, the best performer on Colombia’s benchmark stock index, as Avianca rebounds from setbacks including including a pilots strike, the abrupt departure of its former CEO, and the ouster of its longtime chairman and owner German Efromovich, whose company had defaulted on a loan with United Airlines.
Yesterday, the company said it will offer to swap the $550mn in debt due in May for new, guaranteed bonds. The new debt would be automatically converted into notes with a 9% coupon and May 2023 maturity after re-profiling concludes and the United and Kingsland investment closes, according to a regulatory filing. The company said it does not expect the exchange to close before September.
After Efromovich was ousted, United passed the majority of voting rights to the second-largest shareholder, Kingsland Holdings. Kingsland appointed a new board, naming as chairman Roberto Kriete, who built TACA Airlines into one of Central America’s largest airlines before merging it with Avianca.
United is prohibited from taking control outright.Neuhauser, a former Credit Suisse executive, was joined this month by chief executive officer Anko van der Werff, who has two decades of airline experience, most recently as chief revenue officer for Grupo Aeromexico SAB.
Under its turnaround plan, the company plans to cut leverage to 4.5 times Ebitda from above 6 times currently. The airline owes a total of about $5bn, with roughly $1bn in loans and bonds due in 2019 and 2020.
This includes a $550mn note due in May, according to company filings. Lenders include Barclays, BNP Paribas, Citibank, JPMorgan, and ING Capital, with some loans guaranteed by European export credit agencies.
“The key objective is taking costs out, taking airplanes out, taking flights out without reducing our service, our coverage, our destinations,” Neuhauser said. “It’s about redrawing the map and making sure we do it in a more efficient way.”
United and Kingsland have pledged a $250mn line of credit, “provided that certain commitments are assumed by other interested parties,” Avianca said in a regulatory filing.
Meanwhile, the company has hired Seabury Capital Group – which is separate from Seabury Consulting – to help reorganise its debt structure and improve liquidity.
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