The Colombian court in Cundinamarca is still blocking the $ 370 million state loan to Avianca. The South American carrier did not convince the court that it needed the money, although it claims it is intrinsic to its survival. Let’s investigate further.
A little background
Last month, Jonatan Ruíz Tobón, a Colombian citizen, filed a claim against the state loan to Avianca. He said the loan was a “Irresponsible use of public resources, which endangers administrative morals, public assets and social security”.
The Colombian province of Cundinamarca court approved the request and blocked the state loan. Next, Avianca gave five arguments as to why she should receive the US $ 370 million loan from Colombia. In a nutshell, Avianca said the money was part of DIP funding for his Chapter 11 reorganization. He also claimed that if he did not receive the money from the state, it would jeopardize the future of ‘Avianca and millions of jobs in South America.
The airline said,
“If (the court) prohibits the national government from making the loan, it would affect the structure of DIP funding. Avianca would not receive any new resources and its liquidity would suffer a further reduction, which would deem the (Avianca) operation to be unsustainable.
However, the Court was not convinced.
Why is the Court freezing the money?
Even after Avianca and the Colombian government appealed, the Cundinamarca court still blocked the loan. The court said the loan did not meet legal requirements during the current COVID-19 pandemic.
In addition, the court said that the current financial situation of Avianca Holdings is worrying and that guarantees provided by the Colombian government may prove to be unnecessary.
How much money is Avianca looking for?
Even before the COVID-19 pandemic, Avianca was in financial difficulty. That’s why in 2019, management ousted former owner German Efromovich and brought new faces to the Colombian transporter. Under the leadership of new CEO Anko van der Werff, Avianca was heading in the right direction when COVID hit Latin America. In the first quarter of 2020 alone, Avianca lost $ 121 million.
In this sense, Avianca became the first carrier in Latin America to file for Chapter 11 bankruptcy. Soon, LATAM and Aeromexico followed suit. In September, he filed a petition for approval of a US $ 2 billion debtor-in-use financing (DIP).
This funding is divided into two tranches. One of them opens up the possibility for Latin American governments to participate in the financing. As we know, Avianca is a historic Colombian company that has branches in Latin America in places like Panama, Peru, Ecuador, United States, etc.
Tranche A is a senior loan of US $ 1.27 billion. More than 100 lenders, including governments, participate in Tranche A, according to the airline.
At the same time, the second tranche consists of a subordinated loan of US $ 722 million. Kingsland Holdings SA, third party investors and other lenders including United Airlines will participate in Tranche B. Commenting on the large number of lenders, Anko van der Werff said:
“We are extremely pleased with the support received from a large number of third party institutional investors and our existing lenders. We believe this demonstrates the market’s confidence in Avianca’s future as a strong, competitive and profitable airline.
What do you think of Avianca’s legal debate with the Cundinamarca court? Let us know in the comments.