US bankruptcy court OKs PAL's reorganization plan

Flag carrier Philippine Airlines (PAL) has secured another victory in relation to its bid to restructure its pandemic-battered business.

In a statement on Saturday, PAL said the United Bankruptcy Court of the Southern District of New York has approved its reorganization plan.

In September, PAL filed a voluntary petition for a prearranged restructuring under the US Chapter 11 process.

Under its arrangements 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.

“Today’s court approval represents a critical moment in our journey to emerge as a stronger airline. We are thankful for our loyal customers, dedicated employees, and the support of our shareholders and partners and government, which has enabled us to move efficiently through the process and reach this milestone,” said Gilbert Santa Maria, PAL president and chief operating officer.

“We have a few more procedural steps to take before we can complete the Chapter 11 process, after which we will focus intensely on serving the public, navigating the continuing challenges of the pandemic and economic recovery, and sustaining the links that connect our archipelago,” Santa Maria said.

The latest US court approval came months after PAL secured the court’s go-ahead signal to fully access its “debtor-in-possession” financing amounting to $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.

PAL said the consensual plan was accepted by 100% of the votes cast, which were from its primary aircraft lessors and lenders, original equipment manufacturers and maintenance, repair, and overhaul service providers, and certain funded debt lenders.

It said the restructuring provides for over $2 billion in permanent balance sheet reductions from existing creditors, allows PAL to consensually contract fleet capacity by 25%, and improves PAL’s critical operational agreements and includes $505 million investment in long-term equity and debt financing from the airline's majority shareholder. 

The effective date of the plan is expected to occur before the end of 2021, it said.

PAL said it continues to operate flights to 32 international and 29 domestic destinations from its hubs in Manila, Cebu and Davao.

The flag carrier is expecting to restore more routes and increase flight frequencies as travel restrictions ease and borders reopen.

Following implementation of the restructuring plan, PAL said it will be better positioned to capture travel demand and serve the needs of global citizens, actively contributing to the Philippine economy.

PAL clarified it 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. —LBG, GMA News