Restructuring Plans By Latam Airlines Will Lead To A Return To US Capital Markets

The largest airline in Latin America plans to return to US capital markets after cutting nearly $4 billion in debt.

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Ramiro Alfonso, the Chief Financial Officer of Latam Airlines Group SA, said in a video interview that the company is considering re-listing its American depository receipts on the New York Stock Exchange after they were suspended during the bankruptcy. According to him, the company also anticipates that a return to the international bond markets will take place next year. 

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Santiago-based carrier, which emerged from Chapter 11 in November, is reducing debt-to-earnings ratios while adding routes.

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“The new Latam has a good chance to be recognized and understood by the market,” Alfonsín said. “Probably in 2024, we will begin to address the refinancing question." 

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At least four of South America's largest markets, including Buenos Aires, are served by this company, which operates 310 aircraft and has the largest share in at least four of them. In 2020, when the Covid-19 pandemic crippled air travel in Latin America, the company had to restructure in US bankruptcy court.

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During the restructuring, more than $1 billion in secured notes due in 2027 and 2029 were issued as private placements, bringing the company's debt to about $6.5 billion. In a Trade Algo index, high-yield airlines have gained an average of 7.6% since their notes were issued. 

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Since the company exited bankruptcy, its shares, which traded on Santiago's stock exchange for decades, have lost 19% of their value. Over-the-counter trading has been taking place for its ADRs. 

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The airline has set a 2023 guidance for Ebitdar - a standard measure of airline profitability - at $2 billion to $2.2 billion, a figure that is very similar to that it reported in 2019, the last full year before the pandemic began. It is expected that by the end of 2022, net debt will fall to around three times Ebitdar from four times at the end of 2022.

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Expansion Plans

There are 2.3 billion dollars of liquidity left in the company after the company secured cash through a new ownership structure that includes stakes held by US investment firms Sixth Street Partners and Strategic Value Partners, as well as international carriers Delta Airlines and Qatar Airways Group. 

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During the course of the year, Latam plans to fly 38 more routes than it did before the pandemic as demand increases. Latam has joined Delta in a joint business agreement for international expansion, which is "among the most lucrative and least difficult strategies," according to Citigroup Inc. analyst Stephen Trent. 

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As for the domestic markets, Alfonso said Latam is considering Colombia after the low-cost carrier Viva Air stopped operating last month after failing to integrate with Avianca Holdings SA, the country's second-largest carrier, after a failed integration attempt.

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Furthermore, it sees opportunities to further expand its market share in Brazil, which it claims is around 37%. There are two competing airlines in the area, Gol Linhas Aereas Inteligentes SA and Azul SA, which avoided Chapter 11 during the pandemic. However, they are now working on agreements to strengthen their finances significantly. 

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“Several companies went through Chapter 11 and restructured, while others weathered the storm,” he said. "Now you're seeing the consequences of that."

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