Avianca Holdings S.A. – Court Approves Disclosure Statement (With Updates on Board Composition and Potential Impact of Airbus and Boeing Negotiations) and Schedules October 26th Confirmation Hearing

September 15, 2021 – The Court hearing the Avianca Holdings cases issued an order approving (i) the Debtors’ Disclosure Statement, (ii) proposed Plan solicitation and voting procedures and (iii) a proposed timetable culminating in an October 26, 2021 Plan confirmation hearing [Docket No. 2136]. Subsequent to approval of the Disclosure Statement, the Debtors filed solicitation versions of their Third Amended Plan and Disclosure Statement [Docket Nos. 2137 and 2138, respectively]. 

Also filed were pre-approval versions of the Third Amended 11 Plan and Disclosure Statement [Docket Nos. 2129 and 2131, respectively] and blacklines (changed pages only) of each showing changes to the versions filed on September 13, 2021 [Docket Nos. 2130 and 2132 respectively].

The only material changes to the Disclosure Statement as approved were the addition of language as to (i) negotiations with Airbus and Boeing on purchase agreements that the Debtors are looking to amend/reject and (ii) an update on the emerged company's board composition.

On the Airbus and Boeing negotiations (added disclosure in bold), the Disclosure Statement now provides: "Since the onset of COVID-19, Avianca has taken further steps to streamline its fleet profile and reduce the number of future deliveries. As to future deliveries, as part of these Chapter 11 Cases, Avianca currently is undertaking negotiations with Airbus and Boeing to assume and amend or reject these purchase agreements. Regardless of whether the Debtors reach agreements with Airbus and Boeing with respect to these purchase agreements or ultimately determine to reject the purchase agreements, the Debtors do not expect a substantive impact to their business plan as a result."

On Board composition, the Disclosure Statement now reads: "On the Effective Date, the Reorganized AVH Board will consist of at least nine (9) directors, one of which will be an independent director (1) of whom will be the Reorganized Debtors’ then-serving Chief Executive Officer, one (1) of whom will be designated by each
Principal Investor¹⁷ for so long as such holder of New Common Equity is a Principal Investor, and four (4) of whom will be independent directors; one (1) of such independent directors will be selected in consultation with the Committee. The identities of the other directors will, to the extent known, be disclosed in the Plan Supplement….

^FN17 The composition of the  'Principal Investors' means (i) each Tranche B DIP Lender that, collectively with its affiliates, holds, in the aggregate, 10% or more of the New Common Equity outstanding as of emergence (the 'Original Principal Investors'), together with (ii) two (2) unaffiliated holders of New Common Equity that are  appointed by the Original Principal Investors holding, in the aggregate, a majority of the New Common Equity held by the Original Principal Investors. The Debtors expect that there will be four (4) Principal Investors as of the Effective Date."

Key Dates:

• Plan Supplement Filing Deadline: October 5, 2021
• Publication Deadline: October 12, 2021
• Voting Deadline: October 15, 2021
• Plan Objection Deadline: October 19, 2021
• Confirmation Hearing: October 26, 2021

Overview of the Plan

The Disclosure Statement [Docket No. 2138] notes, “The Plan is the result of extensive good faith negotiations, overseen by AVH’s board of directors, among the Debtors and several of their key economic stakeholders. The Plan is supported by, among others, the Committee; the Consenting Noteholders (as defined below), which collectively held a majority of the Debtors’ 9.000% Senior Secured Notes due 2023 prior to giving effect to the DIP Roll-Up (as defined below); and a majority of the holders of Tranche B DIP Facility Claims.

The Plan provides for a comprehensive restructuring of the Company’s balance sheet and a significant investment of new capital in the Company’s business. The transactions contemplated in the Plan will strengthen the Company by substantially reducing its debt and increasing its cash flow and will preserve over 10,000 jobs. More specifically, in connection with the Plan:

• The Debtors have determined to exercise their right, pursuant to the DIP Facility Documents, to convert the Tranche A-1 DIP Facility Claims and Tranche A-2 DIP Facility Claims to seven (7)-year exit financing upon emergence. Subject to satisfaction of certain conditions precedent, Tranche A-1 DIP Facility Claims and Tranche A-2 DIP Facility Claims will convert into indebtedness under the Exit Facility pursuant to the Plan.
• As discussed in more detail below, the Debtors engaged in a competitive marketing process (the ‘Equity Solicitation Process’) to determine whether an alternative investor (an ‘Alternative Sponsor’) would be willing to provide capital to the Reorganized Debtors on terms superior to those offered by the Tranche B DIP Lenders, which, as part of the DIP Credit Agreement, committed to convert all of the Tranche B DIP Facility Claims to at least 72% of fully diluted equity securities of a new corporation or other legal entity that may be formed on or prior to the Effective Date to, among other things, directly or indirectly acquire substantially all of the assets and/or stock of AVH (as defined in the Plan, ‘Reorganized AVH’).
• Ultimately, and as discussed further below, the Equity Solicitation Process yielded one indication of interest, which did not aggregate sufficient value to satisfy all Tranche B DIP Facility Claims in full in Cash. Accordingly, the Debtors, in their business judgment, determined that the terms of the indication of interest were not superior to those offered by the Tranche B DIP Lenders. Therefore, the Debtors have elected to exercise their option under the DIP Credit Agreement to convert the Tranche B DIP Facility Claims to equity in Reorganized AVH (as defined in the Plan, the ‘New Common Equity’) as part of the Plan. Additionally, certain holders of Tranche B DIP Facility Claims have agreed to contribute cash and/or assets to the Reorganized Debtors in an aggregate amount of $200 million in exchange for New Common Equity.
• As set forth in further detail in the Plan, holders of General Unsecured Avianca Claims will receive the cash equivalent of their Pro Rata share of (a) 1.75% of the New Common Equity and (b) warrants to purchase 5.0% of the New Common Equity, with a cashless exercise price of $1.48 billion and a five (5) year term (as defined in the Plan, the ‘Warrants’); provided, that, in the event that the Class of General Unsecured Avianca Claims votes to accept the Plan, holders of General Unsecured Avianca Claims will receive the cash equivalent of their Pro Rata share of an additional 0.75% of the New Common Equity (i.e., 2.5% of the New Common Equity in the aggregate) and the Warrants. In lieu of receiving cash, holders of General Unsecured Claims may elect to receive their Pro Rata share of the applicable percentage of New Common Equity and the Warrants by making a written election on a timely and properly delivered and completed Ballot to receive the Unsecured Claimholder Equity Package.
• These recoveries are being carved out of the value of the collateral securing the Tranche B DIP Facility Claims and would not otherwise be available to holders of such unsecured Claims without the consent of holders of Tranche B DIP Facility Claims, which consent was obtained in connection with good-faith, arms’-length negotiations among the Debtors, the Committee and holders of Tranche B DIP Facility Claims. Such negotiations resulted in a global settlement (the ‘Global Plan Settlement’), pursuant to which the Debtors resolved all issues that may have been raised by the Committee with respect to the Plan, including, among other things, disputes on enterprise value.
• On the Effective Date or as soon as reasonably practicable thereafter, all Interests in AVH will be cancelled, released, extinguished or receive economically similar treatment, to the extent permitted by applicable law as determined by the Debtors in their business judgment. Holders of Interests in AVH will not receive any distributions, nor retain any property, under the Plan.
• The foregoing transactions will eliminate approximately $3.0 billion of debt from the Debtors’ consolidated balance sheet.

In developing the Plan, the Debtors conducted a careful review of their existing business operations and compared their projected value as an ongoing business enterprise with their projected value in a liquidation scenario, as well as the estimated recoveries to holders of Allowed Claims in each of these scenarios. The Debtors concluded that the potential recoveries to holders of Allowed Claims would be maximized by the Debtors’ continued operation as a going concern through implementation of the Plan and the Global Plan Settlement. The Debtors believe that their businesses and assets have significant value that would not be realized in a liquidation. Moreover, the Debtors believe that any alternative to the Plan, such as an asset sale, or attempts by another party to file an alternative plan of reorganization, could result in significant delay, litigation, execution risk and additional costs, ultimately lowering the recoveries to holders of Allowed Claims that are achieved pursuant to the Global Plan Settlement.”

The following is asummary of classes, claims, voting rights and expected recoveries showing highlighted changes (defined terms are as defined in the Plan and/or Disclosure Statement; also see Liquidation Analysis below):

• Class 1 (“Priority Non-Tax Claims”) is unimpaired, deemed to accept and not entitled to vote on the Plan. The expected recovery is 100%.
• Class 2A (“Other Secured Claims”) is unimpaired, deemed to accept and not entitled to vote on the Plan. The expected recovery for Secured Portion: 100% and Unsecured Portion: 1.0% – 1.4%.
• Class 2B (“Recharacterization Claims”) is impaired and entitled to vote on the Plan. The expected recovery for Secured Portion: 100% and for the Unsecured Portion: 1.0% – 1.4%. Treatment: Each holder of an Allowed Recharacterization Claim will (a) with respect to the portion of such Allowed Recharacterization Claim that is a Secured Claim, at the option of the Debtors or Reorganized Debtors, as applicable, either (1)(A) retain the Lien(s) securing such Claim and (B) receive on account of such Claim deferred cash payments totaling the Allowed amount of such Claim, which will be of a value, as of the Effective Date, of at least the value of such holder’s interest in the Estate’s interest in the property securing such Claim or (2) receive Cash in an amount equal to the Allowed amount of such Claim on the later of the Effective Date and the date that is ten (10) Business Days after the date such Recharacterization Claim becomes an Allowed Claim and (b) with respect to the portion of such Allowed Recharacterization Claim that is not a Secured Claim, receive the treatment accorded to General Unsecured Claims.

FN: As set forth in the Plan, Recharacterization Claims are “Claims resulting from the recharacterization of an unexpired lease as a loan.” The Schedule of Recharacterization Claims will be filed by the Debtors on the Bankruptcy Court docket at least five (5) Business Days prior to the Confirmation Hearing. Thus, as of the commencement of solicitation of acceptances or rejections of the Plan, Class 2B was a vacant Class.

FN: These estimated recoveries assume that the unsecured portion of any Recharacterization Claim receives treatment as a General Unsecured Avianca Claim and that Class 11 votes to accept the Plan.

• Class 3 (“Engine Loan Claims”) is impaired and entitled to vote on the Plan. The aggregate amount of claims is $52,226,711 and expected recovery is 100%. The Engine Loan Agreement will be amended as of the Effective Date in accordance with an amendment to be included in the Plan Supplement. The amendment will provide for, among other things, no reduction in the outstanding amount of principal, payment of accrued interest (at the revised non-default rate) on regular interest payment dates, and an amended amortization schedule.
• Class 4 (“Secured RCF Claims”) is impaired and entitled to vote on the Plan. The aggregate amount of claims is $100,000,000 and expected recovery is 100%. The Secured RCF Agreement will be amended and restated as of the Effective Date in accordance with, and subject to, the terms and conditions of the Secured RCF Amendment. Notwithstanding anything in this Plan to the contrary, the Secured RCF Claims will remain outstanding and be in full force and effect as of the Effective Date under the amended Secured RCF Agreement and are not satisfied, cancelled, extinguished, discharged, or released by this Plan, the Confirmation Order, or on account of the Confirmation or Consummation of this Plan. Each Secured RCF Lien is stipulated to as valid, perfected, and not avoidable and will secure the Secured RCF Claims under the amended Secured RCF Agreement, and each such Secured RCF Lien will, as of the Effective Date, (i) be ratified, reaffirmed, and deemed granted by the Reorganized Debtors, (ii) remain attached to the Reorganized Debtors’ respective assets and property to secure payment of the Secured RCF Claims under the amended Secured RCF Agreement, and (iii) not be, and will not be deemed to be, impaired, discharged or released by this Plan, the Confirmation Order, or on account of the Confirmation or Consummation of this Plan. On the Effective Date, the Debtors will pay in Cash in full all accrued and unpaid interest under the Secured RCF Agreement; provided, that interest accruing at the default rate under the Secured RCF Agreement during the pendency of the Chapter 11 Cases through the Effective Date will be waived and will not be due and payable, subject to the occurrence of the Effective Date.
• Class 5 (“USAV Receivable Facility Claims”) is unimpaired, presumed to accept and not entitled to vote on the Plan. The aggregate amount of claims is $66,962,332.85, pursuant to the USAV Settlement Agreement and expected recovery is 100%.
• Class 6 (“Grupo Aval Receivable Facility Claims”) is unimpaired, presumed to accept and not entitled to vote on the Plan. The aggregate amount of claims is $128,552,032, pursuant to the Grupo Aval Settlement Agreement and expected recovery is 100%.
• Class 7 (“Grupo Aval Lines of Credit Claims”) is impaired and entitled to vote on the Plan. The aggregate amount of claims is $11,651,000, allocated as $1,000,000 to Banco de Bogotá S.A. and $10,651,000 to Banco de América Central S.A. El Salvador and expected recovery is 100%. Holder shall receive, in full and final satisfaction of its Grupo Aval Lines of Credit Claim, (i) its Pro Rata share of the Grupo Aval Exit Facility; (ii) its Pro Rata share of the Grupo Aval LifeMiles Consideration; and (iii) equal Cash payments on the first Business Day of each month on or after the Effective Date through January 2024, in an amount equal to non-default interest accrued and unpaid under the Grupo Aval Lines of Credit through the Effective Date.
• Class 8 (“Grupo Aval Promissory Note Claims”) is unimpaired, presumed to accept and not entitled to vote on the Plan. The aggregate amount of claims is $9,999,997.28 and expected recovery is 100%.
• Class 9 (“Cargo Receivable Facility Claims”) is unimpaired, presumed to accept and not entitled to vote on the Plan. The aggregate amount of claims is $3,176,468, plus accrued and unpaid interest (at the applicable non-default rate) due under the terms of the existing Cargo Receivable Facility Agreement and expected recovery is 100%.
• Class 10 (“Pension Claims”) is unimpaired, presumed to accept and not entitled to vote on the Plan. The expected recovery is 100%.
• Class 11 (“General Unsecured Avianca Claims”) is impaired and entitled to vote on the Plan. The expected recovery is 1.0% – 1.4% (with the $6.0mn "Unsecured Claimholder Cash Pool " incentive, ie if the class votes in favor of the Plan). Each holder of an Allowed General Unsecured Avianca Claim will receive its Pro Rata share of either (A) the Unsecured Claimholder Cash Pool or (B) if such holder makes a written election to receive the Unsecured Claimholder Equity Package, (1) the Unsecured Claimholder Equity Pool and (2) the Warrants; provided, that, if Class 11 votes to accept the Plan, in addition to the treatment set forth above, each holder of an Allowed General Unsecured Avianca Claim will also receive its Pro Rata Share of either (x) the Unsecured Claimholder Enhanced Cash Pool or (y) if such holder duly elects to receive the Unsecured Claimholder Equity Package, the Unsecured Claimholder Enhanced Equity Pool. For the avoidance of doubt, if a holder of an Allowed General Unsecured Avianca Claim does not duly elect to receive the Unsecured Claimholder Equity Package, such holder will automatically receive its distribution in Cash (i.e., its Pro Rata share of the Unsecured Claimholder Cash Pool and, as applicable, the Unsecured Claimholder Enhanced Cash Pool).
• Class 12 (“General Unsecured Avifreight Claims”) is unimpaired, presumed to accept and not entitled to vote on the Plan. The expected recovery is 100%.
• Class 13 (“General Unsecured Aerounión Claims”) is unimpaired, presumed to accept and not entitled to vote on the Plan. The expected recovery is 100%.
• Class 14 (“General Unsecured SAI Claims”) is unimpaired, presumed to accept and not entitled to vote on the Plan. The expected recovery is 100%.
• Class 15 (“General Unsecured Convenience Claims”) is impaired and entitled to vote on the Plan. The expected recovery is 1.0%. Except to the extent previously paid during the Chapter 11 Cases or such holder agrees to less favorable treatment, each holder of an Allowed General Unsecured Convenience Claim shall receive, in full and final satisfaction of its General Unsecured Convenience Claim, Cash in an amount equal to 1.0% of the amount of such Allowed General Unsecured Convenience Claim.
• Class 16 (“Subordinated Claims”) is impaired, deemed to reject and not entitled to vote on the Plan. The expected recovery is 0%.
• Class 17 (“Intercompany Claims”) is unimpaired/impaired, deemed to accept/reject and not entitled to vote on the Plan. The expected recovery is 0%.
• Class 18 (“Existing AVH Non-Voting Equity Interests”) is impaired, deemed to reject and not entitled to vote on the Plan. The expected recovery is 0%.
• Class 19 (“Existing AVH Common Equity Interests”) is impaired, deemed to reject and not entitled to vote on the Plan. The expected recovery is N/A.
• Class 20 (“Existing Avifreight Equity Interests”) is unimpaired, presumed to accept and not entitled to vote on the Plan. The expected recovery is N/A.
• Class 21 (“Existing SAI Equity Interests”) is unimpaired, presumed to accept and not entitled to vote on the Plan. The expected recovery is N/A.
• Class 22 (“Other Existing Equity Interests”) is impaired, deemed to reject and not entitled to vote on the Plan. The expected recovery is N/A.
• Class 23 (“Intercompany Interests”) is unimpaired/impaired, deemed to accept/reject and not entitled to vote on the Plan. The expected recovery is N/A. 

Liquidation Analysis (see Exhibit C to amended Disclosure Statement [Docket No. 2011])

About the Debtors

According to the Debtors: “Avianca is the commercial brand for the collection of passenger airlines and cargo airlines under the umbrella company Avianca Holdings S.A. Avianca has been flying uninterrupted for 100 years. With a fleet of 158 aircraft, Avianca serves 76 destinations in 27 countries within the Americas and Europe. With more than 21,000 employees, Avianca Holdings had revenues of US$4.6 billion in 2019 and transported 30.5 million passengers. On February 22, 2019, Avianca Holdings announced its corporate transformation plan consisting of four key pillars: 1) the improvement of operational indicators, 2) fleet adjustments, 3) the optimization of operational profitability and 4) repositioning of non-strategic assets. On May 24, 2019, control of Avianca Holdings was assumed by Kingsland Holdings Limited, an independent third party of United Airlines.”

S&P added: “Avianca, through its subsidiaries, engages in the passenger and cargo air transportation services, aircraft maintenance, airport services to other carriers, travel-related services to its customers and ground operations for third-party airlines in hub airports. Moreover, Avianca is the main shareholder of LifeMiles, a loyalty rewards program company. Avianca is Colombia’s largest airline. It has operations in 27 countries and flies to 105 destinations in the U.S., Latin America and Europe. Avianca was founded in 1919 and is headquartered in Panama City, Panama.”

Corporate Structure Chart (see Exhibit B to Disclosure Statement)

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