PAL granted $505-M financing by US bankruptcy court photo from Abogado

PAL granted $505-M financing by US bankruptcy court

Oct 2, 2021, 6:18 AM
Rose De La Cruz

Rose De La Cruz


With additional funding, PAL will continue to operate flights and “meet all its current financial obligations throughout the Chapter 11 process to employees, customers, the government, and its lessors, lenders, suppliers and other creditors.”

Aside from recently getting access to $20 million debtor in possession (DIP) financing, the nation’s flag carrier, Philippine Airlines was given another access to multi-draw term loan of $505 million by the Bankruptcy Court for the Southern District of New York last September 30.

PAL’s DIP financing is composed of a multi-draw term loan facility of $250 million — access to $20 million of which was approved by the bankruptcy court recently — and another multi-draw term loan of $255 million.

The US Chapter 11 court has allowed Philippine Airlines (PAL) to tap the remainder of a $505-million loan facility that would be underwritten by billionaire-owner Lucio Tan.

PAL had earlier accessed an initial $20 million from the DIP facility, a core feature of its restructuring plan that would provide the flag carrier with needed liquidity to survive the ongoing health crisis.

“This important step confirms that our recovery process is on track as we continue to work hard on securing a fully consensual reorganization plan in an efficient manner,” PAL president and chief operating officer Gilbert Santa Maria said in a statement on Friday.

“We want to thank our lenders, aviation partners and other creditors for their high level of support and confidence in the future of PAL. We also appreciate the support of our valued customers as we continue to serve travelers and the Philippine economy,” he added.

Restructuring expenses

The loans will be secured by PAL’s aircraft narrow body fleet of Airbus A320s and DHC 8-300/400 turboprop planes, spare engines and frequent flyer miles, the Inquirer reported.

The DIP proceeds will be used to repay and refinance bridge loan obligations, provide working capital for PAL and cover other fees and expenses during the restructuring.

Before the Chapter 11 filing last September 3, Tan provided bridge financing to PAL worth a combined $100 million.


With additional funding, PAL will continue to operate flights and “meet all its current financial obligations throughout the Chapter 11 process to employees, customers, the government, and its lessors, lenders, suppliers and other creditors.”

In a separate filing on Sept. 30, the US court authorized PAL to settle $73 million in claims from so-called critical and foreign vendors before the filing on Chapter 11 proceedings.

“With approval to fully access our DIP financing, PAL has the additional liquidity needed to meet our current and future obligations and to continue operating as usual,” Nilo Thaddeus Rodriguez, PAL chief financial officer, said in a statement.

“PAL will emerge a leaner and more competitive airline thanks to our hardworking employees, the resolute commitment of our majority shareholder and the strong support from our stakeholders and creditors,” he added.

Remove debts

The prearranged Chapter 11 process, which PAL hopes to exit within the year, would remove about $2.1 billion in aircraft-related debts.

Prior to the filing, PAL had overall assets of $4.1 billion and $6.07 billion in liabilities with cash and its equivalents amounting to $31.9 million.

The carrier’s restructuring program also involves returning 21 planes to lessors, thereby cutting its fleet to 70 aircraft. The carrier said it would revamp its global route network and cancel ultra long-haul flights while continuing local and regional expansion.

Santa Maria earlier said the downsized operations would help the carrier sustain its business until pre-pandemic demand returns in 2024 to 2025.

US bankruptcy court judge Shelley C. Chapman issued the “final order” authorizing PAL to obtain “post-petition financing” on Sept. 30 after the “second day hearing” held that day, according to court documents from PAL’s claims agent Kurtzman Carson Consultants LLC.

PAL in a press release said the long-term equity and debt financing, as part of the flag carrier’s restructuring, will support the company’s ongoing operations and recovery plan.

The court also authorized PAL, “but not directed,” to pay “some or all” of the pre-petition claims of “critical” and foreign vendors in an aggregate amount not exceeding $73 million.

The motion seeking authorization to pay certain employee wages and other compensation and related obligations as well as maintain and continue employee benefits and programs in the ordinary course was also granted on a final basis.

At the same time, the court also allowed PAL, “but not directed,” to fulfill and honor its obligations to customers and related third parties.

PAL can “continue, renew, replace, implement new and/or terminate any Customer Program or Commercial Agreement… in the ordinary course of business, without further application to the court, including making all payments, satisfying all obligations, and permitting all setoffs in connection therewith, whether relating to the period prior to, on, or subsequent to the petition date.”

PAL said last week that it had filed a petition before a Pasay City court seeking recognition of the proceedings and decisions of US Bankruptcy Court for the Southern District of New York that is hearing its Chapter 11 case.

The “First Day Motions” hearing took place on Sept. 9. The airline won the court’s approval to access the first $20 million of its DIP financing totaling $505 million.

Trading of PAL’s stock in the Philippine Stock Exchange, under its parent company PAL Holdings Inc., was halted on June 18. So far, the stock remains suspended.

A disclosure in the PSE days ago reported that PAL Holdings granted the increase of its authorized capital from P13.5 billion to P30 billion, meant to make space for a fresh infusion of funding from the Lucio Tan Group of Companies.

“The new capital will in turn be invested into issuer's subsidiary, Philippine Airlines, pursuant to the court-supervised reorganization of PAL,” the disclosure said.

Tags: #PhilippineAirlines, #restructuring, #bankruptcy, #financing

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