LTG infuses $250M into PAL’s reorganization

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Lucio Tan Group, through Buona Sorte Holdings Inc. (BSHI), is extending a $250-million loan to Philippine Airlines Inc. (PAI) to support the flag carrier’s reorganization and enable it to achieve its target profitability by 2025.

In a disclosure to the Philippine Stock Exchange, PAL Holdings Inc. said it is expected to receive a total of $255 million or P12.75 billion in cash from BSHI before the year ends, following the subscription to PAL Holdings’ authorized capital that will increase from P13.5 billion to P30 billion. PAL Holdings is the flag carrier’s parent company.

“The $255 million or P12.75 billion cash received by Issuer (PAL Holdings) from BSHI will be downstreamed to PAI pursuant to the above-described court-supervised reorganization of PAI to effect the restructuring contemplated by various restructuring support agreements (RSAs),” PAL Holdings said.

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The P12.75 billion cash from BSHI will constitute the full and final payment for its subscription to 10.2 million common shares at a subscription price of P1.25 per share to be issued in support of PAL Holdings’ application for increase in capital.

Upon issuance of the new shares, BSHI is expected to own 46.77 percent of the resulting outstanding capital stock of the issuer. Post capital hike, BSHI, together with Cosmic Holdings Corp. and Trustmark which collectively comprise the Lucio Tan Group, will own 89.45 percent of PAL Holdings.

PAL Holdings said BSHI, as part of the plan of reorganization, will extend a five-year term loan to PAI in the amount of $250 million to complete the $505 million working capital requirement of PAL under its proposed plan of reorganization.

“The Lucio Tan Group is committed to support PAI’s overall plan to position itself for the post-pandemic environment. To this end, the Lucio Tan Group, through the BSHI private placement with Issuer and the loan to be extended by BSHI to PAI, is ready to underwrite a substantial portion of the financial burden to assist PAI in its recovery plan,” PAL Holdings said.

The proposal for a capital increase will be presented for consideration of the PAI stockholders in the meeting scheduled on October 28.

The issuer’s cash infusion as well as the loans of other unsecured creditors will be used to support PAI’s application for capital increase via debt-to-equity, which is targeted to be filed in the latter part of the year.

For purposes of its cash infusion into PAL Holdings, BSHI will execute a subscription agreement as soon as the shareholders approve the proposed capital increase to be presented at the annual shareholders meeting scheduled on November 25.

Likewise, a subscription agreement will be executed by PAL Holdings in relation to its infusion of $255 million into PAI to support PAI’s application for capital increase.

PAI’s reorganization plan includes resizing and reshaping its operations, permanent restructuring of its obligations and broad recapitalization.

“The issue value used by the parties was deemed justified by the said forecast showing improved profitability and liquidity of PAI by the end of 2025,” PAL Holdings said.

The RSAs and the plan of reorganization contemplated the reduction of PAI’s aircraft related obligations by approximately $2.1 billion, a $505 million infusion of working capital to fund PAI’s ongoing operations during the Chapter 11 filing of which $255 million from the issuer will be subsequently converted into equity in PAI, optimizing PAI’s fleet size, composition and ownership costs as required by the new market, maintaining and enhancing PAI’s key contracts and business partners to strengthen its viability during the pending pandemic and beyond, and obtaining commitments for a $150 million exit facility from new investors to ensure PAI has adequate liquidity and runway to complete its restructuring. – Myla Iglesias

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