In re LATAM Airlines Grp. S.A.

In re: LATAM Airlines Group S. A., et al., Debtors.^[1]

No. 20-11254 (JLG)

United States Bankruptcy Court, S.D. New York

January 28, 2022

Chapter 11

(Jointly Administered)

APPEARANCES:

TOGUT SEGAL & SEGAL LLP

Attorneys for the Debtors

By Albert Togut, Esq.

Kyle J. Ortiz, Esq.

Bryan M. Kotliar, Esq.

Amanda C. Glaubach, Esq.

DECHERT LLP

Counsel to the Official Committee of Unsecured Creditors

By: Allan S. Brilliant, Esq.

David A. Kotler, Esq.

Stephen M. Wolpert, Esq.

PAUL HASTINGS LLP

Counsel to Banco del Estado de Chile, in its capacity as indenture trustee under the Chilean Local Bonds Series A through D and Series E issued by LATAM Airlines Group S.A.

By: Pedro A. Jimenez, Esq.

Andrew Tenzer, Esq.

Nicholas Bassett, Esq.

Shlomo Maza, Esq.

MEMORANDUM DECISION AND ORDER GRANTING THE DEBTORS' MOTIONS FOR ENTRY OF AN ORDER APPROVING SETTLEMENT STIPULATIONS BY AND AMONG THE DEBTORS, SAJAMA INVESTMENTS, LLC AND CERTAIN OTHER CLAIMANTS

HON. JAMES L. GARRITY, JR. U.S. BANKRUPTCY JUDGE

Introduction

There are two matters before the Court. The first is the motion of LATAM Airlines Group S.A. ("LATAM Parent") and TAM Linhas Aéreas, S.A. ("TAM"), as the lessees under certain aircraft leases, and certain of their affiliated debtors and debtors-in-possession (collectively, the "Debtors")^[2] (the "SVP Settlement Motion")^[3] for entry of an order, pursuant to sections 105(a), 362, 363 and 365 of title 11 of the United States Code (the "Bankruptcy Code") and Rules 6006 and 9019 of the Federal Rules of Bankruptcy Procedure (the "Bankruptcy Rules"), (a) authorizing the Debtors to implement certain transactions with (i) Poppintree Park LLC ("Poppintree"); (ii) Strategic Value Dislocation Master Fund L.P. ("SVDMF"); (iii) Strategic Value Opportunities Fund L.P. ("SVOF"); (iv) Strategic Value Special Situations Master Fund IV L.P. ("SVSSMF-IV"); (v) Strategic Value Special Situations Master Fund V L.P. ("SVSSMF-V"); and (vi) Strategic Value New Rising Fund L.P. ("SVNRF"), including the entry into the transactions contemplated by a certain term sheet (the "Term Sheet"), ^[4] providing for the Debtors' entry into the New Leases and other Transaction Documents (each as defined below), and (b) approving the related settlement agreement (the "Aircraft Lease Settlement Agreement")^[5] between the Debtors and certain claimants (the "SVP Settlement").^[6] In substance, by the SVP Settlement Motion, the Debtors seek authorization to enter into sixteen aircraft lease agreements (defined below as the "Go Forward Lease") and to reject the underlying Centaurus/Triton Leases and the SBI Leases (defined below), which will remain in effect until each Go Forward Leases respective of the same Aircraft becomes effective. The SVP Settlement Motion also seeks to resolve lease rejection damage claims (the "SVP Claims") by allowing the following general unsecured claims: (i) headlease claims against LATAM Parent in the aggregate amount of $484, 000, 000; (ii) guarantee claims against LATAM Parents in the aggregate amount of $226, 000, 000; and (iii) claims of $140, 000, 000 against TAM. Accordingly, the SVP Settlement Motion proposes the allowance of a total of $850, 000, 000 in allowed general unsecured claims against the Debtors.

The second matter is a motion (the "Sajama Settlement Motion" with the SVP Settlement Motion, the "Settlement Motions")^[7] by LATAM Parent and certain of its affiliated Debtors for the entry of an order pursuant to sections 105(a) and 363 of the Bankruptcy Code and Bankruptcy Rules 2002 and 9019, for approval of the terms and conditions of the settlement set forth in the stipulation and order by and among the Debtors and Sajama Investments, LLC ("Sajama"). Various lessors and Wilmington Trust Company ("WTC"), as security assignee of such lessors, filed individual claims against Debtors LATAM Parent, TAM Transport Aéreo S.A., Latam Airlines Perú S.A. and LATAM Airlines Ecuador S.A., each in the amount of no less than $1, 102, 090, 322, plus certain unliquidated damages. By the Sajama Settlement Motion, the Debtors seek the approval of the Sajama Settlement, which will resolve twenty-four claims (the "Settled Sajama Claims") acquired by Sajama relating to the LATAM Pass-Through Certificates, Series 2015-1 (the "EETC") for a single general unsecured claim against LATAM Parent in the sum of $695 million. The Settled Sajama Claims arise out of the Debtors' Court-approved surrender of seventeen aircraft (the "EETC Aircraft"), all of which were subject to separate leasing arrangements (the "EETC Aircraft Leases").

The Official Committee of Unsecured Creditors (the "Committee") and Banco Estado del Chile ("BancoEstado") (collectively, the "Objectors") each filed a single objection to both motions^[8] (collectively, the "Objections"). BancoEstado appears herein in its capacity as indenture trustee under the Chilean Local Bonds issued by LATAM Airlines Group S.A. in the aggregate amount of $490.5 million (the "Chilean Bonds"). Those bonds represent nearly half a billion dollars of unsecured claims against LATAM Parent. The majority of the holders of the Chilean Bonds are Chilean Pension Fund Administrators (Administradores de Fondos de Pensiones), which are investment funds tasked with managing the retirement savings accounts of Chilean workers under Chile's pension system. The Debtors filed a single reply to the Objections (the "Reply").^[9] Sajama and the SVP Parties each filed a statement in support of the Settlement Motions.^[10]

On January 21 and 24, 2022, the Court conducted an evidentiary hearing on the Settlement Motions. For the reasons stated herein, the Court overrules the Objections and grants the Settlement Motions.

Jurisdiction

The Court has jurisdiction to consider this matter pursuant to 28 U.S.C. §§ 157 and 1334 and the Amended Standing Order of Reference dated January 31, 2012 (Preska, C.J.). This is a core proceeding pursuant to 28 U.S.C. § 157(b).

Background^[11]

The Chapter 11 Cases

On May 26, 2020 (the "Initial Petition Date"), certain of the Debtors (the "Initial Debtors") filed voluntary petitions under chapter 11 of the Bankruptcy Code (the "Initial Chapter 11 Cases"). On July 7 and 9, 2020 (the "Subsequent Petition Date" and, together with the Initial Petition Date, as applicable to each Debtor, the "Petition Date"), additional LATAM affiliates filed voluntary petitions under chapter 11 of the Bankruptcy Code (the "Subsequent Chapter 11 Cases" and together with the Initial Chapter 11 Cases, the "Chapter 11 Cases"). The Debtors continue to operate their businesses and manage their properties as debtors-in-possession pursuant to sections 1107(a) and 1108 of the Bankruptcy Code. The Chapter 11 Cases are jointly administered for procedural purposes only. On June 5, 2020, the United States Trustee for Region 2 (the "U.S. Trustee") appointed the Committee and on May 26, 2021, the U.S. Trustee amended the appointment of the Committee. No trustee or examiner has been appointed in any of these Chapter 11 Cases.^[12]

On May 27, 2020, the Grand Court of the Cayman Islands granted the applications of certain of the Debtors for the appointment of provisional liquidators pursuant to section 104(3) of the Companies Law. On June 4, 2020, the 2nd Civil Court of Santiago, Chile issued an order recognizing the Chapter 11 Cases with respect to LATAM Airlines Group S.A., Lan Cargo S.A., Fast Air Almacenes de Carga S.A., Latam Travel Chile II S.A., Lan Cargo Inversiones S.A., Transporte Aéreo S.A., Inversiones Lan S.A., Lan Pax Group S.A. and Technical Training LATAM S.A. In addition, on June 12, 2020, the Superintendence of Companies of Colombia granted the recognition to the Chapter 11 Cases.

On September 24, 2020, the Court entered an order (the "Bar Date Order")^[13] which established December 18, 2020 as the general date by which most creditors must submit their proofs of claim.

The Debtors' Proposed Bankruptcy Plan

On November 26, 2021, the Debtors filed the Joint Plan of Reorganization of LATAM Airlines Group, S.A., et al, under Chapter 11 of the Bankruptcy Code, as amended (the "Plan") and the related disclosure statement, as amended (the "Disclosure Statement").^[14] Shortly thereafter, the Debtors filed the operative amended Plan and Disclosure Statement.^[15] As detailed in the Disclosure Statement, the Plan is supported by a Restructuring Support Agreement (the "RSA")^[16] executed among the Debtors, a group of creditors purporting to holding more than 70% of the general unsecured claims asserted against LATAM Parent (the "Evercore Group") and holders of more than 50% of LATAM Parent's existing equity. Under the RSA, if the Plan is confirmed and goes effective, the members of the Evercore Group will receive $734 million in backstop fees and $427 million in excess allocation of convertible notes being offered under the Plan. The RSA lists a series of "Termination Events" under which the RSA "shall terminate", making "all obligations of the Parties . . . be of no further force and effect," including:

with respect to any Commitment Creditor, the successful prosecution, challenge or objection, filed by any party (other than any of the Commitment Parties or their respective affiliates, transferees or assignees) to the amount (i) as previously Allowed (as defined in the Plan Term Sheet) by a court order and/or (ii) as separately previously agreed to by the Debtors and such Commitment Creditor with respect to any individual claim (to the extent such agreement exists[.]

RSA § 7(f). Sajama is a joint venture comprised of two hedge funds, Sculptor Capital LP ("Sculptor") and Sixth Street Partners, LLC ("Sixth Street").^[17] SVP is also a collection of hedge funds.^[18] Sixth...