Citadel, United among lenders in $2 billion Avianca funding

The hedge fund Citadel Advisors LLC, United Airlines and a Salvadoran air mogul are among investors offering loans as part of Latin American airline Avianca Holdings SA’s $2 billion bankruptcy financing plan, according to court documents.

The companies, which were stakeholders in the carrier before it filed for Chapter 11 protection in May, would help provide about $722 million in loans. Together with a separate tranche of roughly $1.3 billion of debt, Avianca said it has commitments for $2 billion in debtor-in-possession funding.

“Securing these financing commitments is another concrete step forward in our Chapter 11 reorganization process,” Chief Executive Officer Anko van der Werff said in a statement. The plan needs approval from the U.S. Bankruptcy Court for the Southern District of New York.

Avianca shares were unchanged in Bogota trading. Bonds due in 2023, which will be rolled up in the financing plan, were unchanged, according to data compiled by Bloomberg.

The debt being offered by an affiliate of Citadel—the famed hedge fund founded by billionaire Ken Griffin—United, and Salvadoran Roberto Kriete’s Kingsland Holdings would be eligible to roll over into common shares when Avianca emerges from the Chapter 11 reorganization, according to court filings.

Meanwhile, the loans will bear an interest rate of 14.5%, according to filings.

$1.3B Tranche

Creditors holding the 2023 notes will have $220 million of the debt rolled up into new loans. They have agreed to lend an additional $290 million, according to a company statement.

Those loans are part of the $1.3 billion tranche A, which will bear an interest rate of 10.5% over the London interbank offered rate. Avianca also has a payment-in-kind option, in which case the rate rises to 12% over Libor, according to court documents.

Avianca said more than 100 lenders are participating in the tranche, including “new institutional lenders” who are providing $590 million. About $240 million of the tranche is structured to allow for “the eventual participation of one or more governments.”

The Colombian government said last month it is willing to lend $370 million as part of the bankruptcy financing. The loan has come under fire from Avianca’s competitors and Colombian politicians, who have criticized it as being out-of-line compared with spending on social services and amounts offered to other airlines.

A Colombian court this month granted a temporary injunction blocking the loan from being disbursed. Avianca, headquartered in Bogota, appealed, requesting the court promptly lift the injunction.

Avianca, Latin America’s second-largest passenger carrier before the Covid-19 crisis, was one of the first major airlines to fall into bankruptcy due to the global travel downturn. The pandemic forced airlines across the globe to suspend flights, lay off employees and seek financial help from governments and investors. Companies such as Grupo Aeromexico SAB and Virgin Australia Holdings Ltd. have also gone into administration or sought bankruptcy protection.