US bankruptcy court allows PAL to access $505M ‘debtor-in-possession’ financing

Flag carrier Philippine Airlines Inc. (PAL) on Friday announced it has received the approval of a United States bankruptcy court to fully access its “debtor-in-possession” financing amounting to $505 million.

The latest US court approval came weeks after PAL secured the US Bankruptcy Court for the Southern District of New York’s thumbs up to begin the process of securing loan financing for its recovery and restructuring plan, allowing the beleaguered airline to access the first $20 million of its “debtor-in-possession financing” totaling $505 million. 

Debtor-in-possession financing is a type of financing meant for firms which filed for bankruptcy protection or Chapter 11 filing, which involves restructuring of loans while being allowed to continue operating to eventually pay off debts.

“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. We want to thank our lenders, aviation partners and other creditors for their high level of support and confidence in the future of PAL,” said Gilbert Santa Maria, PAL president and CEO.

“We also appreciate the support of our valued customers as we continue to serve travelers and the Philippine economy,” Santa Maria said.

Last month, PAL announced it filed for bankruptcy in the United States, as part of its restructuring plan.

Under agreements with creditors, the flag carrier will secure some $505 million for its recovery plan upon its exit from the process — the first tranche will be a $250-million facility debt to be pared down in the next five years, and the second tranche worth $255 million will be converted into equity.

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

"We're grateful that the court saw fit to approve our motions, and we're told it was a most efficient Chapter 11 hearing for a case of this complexity,” Rodriguez said.

PAL is confident it will exit the Chapter 11 or corporate restructuring process by the end of the year, but revenues are unlikely to return to pre-COVID-19 levels until after 2025.

While under the restructuring process, the flag carrier said it will continue to operate flights in the normal course of business in accordance with safety regulations.

The company said it expects to continue to 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 addition to the approval of the debtor-in-possession financing, PAL said the US Bankruptcy Court for the Southern District of New York granted other approvals including the airline’s motions for customer programs, critical and foreign vendors, employee compensation and authorization to implement the airline’s restructuring support agreements with stakeholders.

These approvals will enable PAL to emerge as a stronger and better-capitalized airline, the flag carrier said.

PAL clarified is the only party included in the Chapter 11 filing, while its listed holding firm PAL Holdings Inc. and Air Philippines Corp., known as PAL Express, are not included in the Chapter 11 filing.

Debevoise & Plimpton LLP, Norton Rose Fulbright US LLP and Angara Abello Concepcion Regala & Cruz (ACCRA) are acting as legal advisors and Seabury Securities LLC as financial advisor and investment banker to the company. -NB, GMA News