Philippine Airlines is claiming that its owner, bilyonaryo Lucio Tan, is the only one willing to lend $505 million into the bankrupt flag carrier after canvassing interest from 115 potential funding sources.
PAL’s restructuring advisor Seabury initiated discussions with the 155 financiers over six to eight weeks with representatives of approximately 115 potential funding sources to confirm if there was any market interest in providing post-Chapter 11 financing at par or better than the $505 million debtor-in-possession (DIP) funding proposed by Tan.
Seabury gave 18 parties access to information about PAL but “ultimately, none of the parties contacted by Seabury were willing to provide such financing on equivalent or more favorable terms.”
“Some were unresponsive or did not want to invest capital in an airline during a global pandemic, others would have required economic terms less favorable to the debtor, and none were willing to provide the debtor with a conversion option into the proposed mix of equity and long-term unsecured debt,” said PAL in its petition.
“In the months since this marketing effort concluded, Seabury has remained in touch with the most interested prospective investors, and it remains the case today that none would be prepared to invest on terms as attractive to the debtor as those proposed under the DIP facility,” it added.
Under the DIP plan, Tan proposed to fork out $505 million in new financing for PAL – Tan’s Buona Sorte will lend $250 million to PAL in Tranche A with PAL Holdings, the airlines’ parent, lending another $255 million in Tranche B. The loans will have an interest of 9.5 percent per annum and give the financier superpriority claims.
PAL said none of the potential financiers were interested in bankrolling Tranche A of the DIP plan which gave the flag carrier an option to convert any portion of these loans to long-term unsecured debt at the end of its Chapter 11 case.
“From the outset, the DIP lenders (Bona Sorte and PAL Holdings) made clear that they would only extend the Tranche A DIP loans if they were lenders for both tranches of the DIP Loans. Accordingly, the favorable terms of both the Tranche A DIP loans and Tranche B DIP loans provided under the DIP facility are only available from the DIP lenders,” said PAL.
Buona Sorte owns 60 percent of Trustmark Holdings (the remaining 40 percent is owned by Tan’s British Virgin Islands Horizon Global Investments), which in turn owns 77 percent of PAL Holdings, the airline’s publicly-listed parent. Japan’s ANA Holdings has a 9.5 percent stake in PAL Holdings.
Tan has so far pumped in $358 million into PAL – $225 million in late 2019 and $133 million during the pandemic from March to August 2020. This is on top of the $100 million bridge financing he made in the first half of 2021 prior to the airline’s September 3 filing for Chapter 11 protection from the United States Bankruptcy Court for the Southern District of New York.
PAL said the DIP loans would be used solely to repay in full and refinance Tan’s bridge loans; to pay reasonable fees, costs, and expenses of the DIP lenders; to provide the airline and its affiliates with working capital; and pay the costs of its Chapter 11 Case
The DIP facility will have a maturity period of 63 months with the 9.5 percent interest payable, at the sole option of PAL, in cash or in kind, or both. PAL will repay 11.1 percent of the loan principal quarterly starting January 2024. PAL will also pay a nonrefundable upfront fee equal to one percent of the DIP loans released.
“The interest rate and fees to be paid under the DIP facility are appropriate, particularly in light of the circumstances of this Chapter 11 case…Moreover, the debtor’s option to convert the DIP Loans into postreorganization unsecured debt and equity was a required component of the restructuring support agreements,” said PAL.