Avianca Airlines (AV, Bogotá) parent Avianca Holdings has been granted permission by the US Bankruptcy Court to solicit votes from its creditors in the United States and Colombia on its proposed restructuring plan.

This was a significant step for the company and its affiliated debtors to emerge from Chapter 11 bankruptcy protection, the company said in a filing to the US Securities and Exchange Commission (SEC).

Following a hearing on September 14, the Bankruptcy Court for the Southern District of New York authorised Avianca to distribute its Disclosure Statement and solicit votes on the plan from certain classes of creditors. The court also set October 6, 2021, as the date when it would consider the approval of the plan. The deadline for creditors to object to the plan was October 19, 2021.

As reported previously, according to the restructuring plan, creditors will be asked to convert USD935 million in outstanding debtor-in-possession (DIP) loans into equity in a new reorganised holding company, as well as USD200 million of additional capital contributed by participating lenders under the same tranche (“Tranche B”).

To facilitate this, the Bankruptcy Court also approved the terms of, and the company’s entry into and performance under, the Equity Conversion and Commitment Agreement, dated September 1, 2021.

In the SEC filing, Avianca reiterated that once the creditors approved the restructuring plan and the Bankruptcy Court had confirmed their approval of it, shareholders (including ordinary shareholders and preferred shareholders) would not receive any distribution. As a result, the value of outstanding shares of the company would be reduced to zero. This would be due to the decrease in equity of the company attributable to the debtors’ liabilities to third parties and creditors, as well as the capital injection by new investors.

Avianca Holdings S.A. and certain of its subsidiaries and affiliates filed voluntary petitions under Chapter 11 of the US Bankruptcy Code on May 10, 2020.

On August 10, 2021, it filed its reorganisation plan and Chapter 11 Disclosure Statement with the Bankruptcy Court. The plan – which estimates the airline group could eliminate about USD3 billion in debt - results from negotiations with investors and other related parties and outlines Avianca’s proposal to make distributions to creditors on account of pre-bankruptcy obligations.

The company, in a statement, said it already had made significant progress in repositioning and simplifying its business by:

  • Adopting more competitive prices for passengers;
  • Continuing its aircraft reconfiguration process;
  • Expanding network routes both domestically and internationally; and
  • Securing long-term labour agreements and strengthening relationships with pilots and other employee groups.