Avianca tells Colombia court that carrier can guarantee loan

A Colombian court temporarily blocked a $370 million government loan to Avianca Holdings SA after a citizen expressed concern about a lack of guarantees.

The Cundinamarca Administrative Tribunal granted an injunction to suspend disbursement after a motion filed by a citizen against the Finance Ministry, the presidency and the airline said the loan, part of its debtor-in-possession financing, may become a “threat” to collective rights and public worth, according to a copy of the ruling sent by court.

The action filed by Jonatan Ruiz demanded the bankrupt airline provide “real, material and above all valuable” guarantees to back the loan, which has been blasted by local competitors and lawmakers who called it out-of-line compared with spending on social services and amounts offered to other airlines. The Finance Ministry and the other defendants have 10 days to respond to the motion.

Avianca said in a filing that in the coming days it will provide information to the court that “will demonstrate that participation by the Republic of Colombia in the company’s debtor-in-possession financing is a beneficial transaction for the country.”

The credit was structured with “substantial collateral support” and “attractive economic returns” for the government and other senior investors, which are “ahead of certain other key stakeholders and third-party lenders in a $700 million subordinated loan,” Avianca said.

The carrier expects to file the motion to U.S. bankruptcy court the next week.

Avianca joins Latam Airlines Group SA and Grupo Aeromexico SAB in filing for bankruptcy protection amid a decline in travel due to the coronavirus pandemic.

Avianca on Sept. 8 placed $1.3 billion of loans, paying a hefty spread of more than 10 percentage points over the London interbank offered rate and a discounted price of 98 cents on the dollar. The loans, part of a $2 billion bankruptcy plan, will need court approval.