Judge Garrity finds that the absolute priority rule was not grounds to deny the debtors’ motions, concluding that the debtors satisfied the elements of the new value exception to the absolute priority rule since the proposed tranche C DIP facility represents “new, substantial money that is needed for a successful reorganization, and reasonably equivalent to the value of that which the tranche C lenders will be receiving.”Īs part of his ruling, Judge Garrity also observed that with regard to short term cost savings, LATAM exceeded its recent cash flow forecast projections. These provisions “effectively lock up any future plan of reorganization to be only the Debtors’ plan providing for the equity conversion,” Judge Garrity states. The opinion states that the modified equity subscription election subverts the reorganization process because the discount that the subscription election provides to the tranche C lenders is not market-tested, the debtors have the discretion to make the election without court approval or oversight, and the election sets forth key terms of an eventual reorganization plan by “prematurely allocating reorganization value to LATAM’s existing equity holders.” Judge Garrity characterized that aspect of the tranche C DIP facility as problematic, saying that it bars approval of the revised DIP credit agreement.įurther, covenants under the revised credit agreement mandate that only a company approved reorganization plan may be confirmed in the chapter 11 cases, regardless of exclusivity, or an event of default will be triggered.
#Sub rosa plan code#
The ruling comes despite findings by the court that (i) the price and terms of the revised DIP credit agreement, including the tranche A DIP facility and the tranche C DIP facility, were “entirely fair,” (ii) there were grounds under section 364(c) of the Bankruptcy Code to authorize the debtors to enter into the DIP credit agreement and (iii) the DIP lenders were entitled to a good faith finding under section 364(e) of the Bankruptcy Code. declined to approve LATAM Airlines’ proposed DIP facility, concluding that the facility’s equity subscription election gives rise to improper sub rosa plan treatment of the tranche C DIP lenders and debtors’ equity holders.
In a 142-page opinion issued this afternoon, Judge James Garrity Jr.
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