Matter of the Year Summary: LATAM Airlines Group S.A.

First Annual ABI International Matter of the Year Award

The committee selected In re LATAM Airlines Group S.A., et al., as the winner of the First Annual ABI International Matter of the Year Award. The award is given to a matter that (1) involved the U.S. and one or more other jurisdictions; (2) resulted in the completion of a unique, strategic or challenging international transaction or litigation; and (3) was of international legal significance and impact in relation to the distressed/insolvency industry. Additionally, the committee selected In re Luckin Coffee Inc. for an Honorable Mention. Both awards were presented at the Cross-Border Insolvency Program on Nov. 14, 2022, at the New York offices of Blank Rome LLP. Check out the summary below!


In May 2020, LATAM Airlines Group S.A. (“LATAM”), Latin America’s largest air carrier, and certain of its affiliates in Chile, Peru, Colombia, Ecuador, the Cayman Islands, and the United States, [1] initiated their cross-border debt restructuring, principally through a chapter 11 proceeding before the Honorable James L. Garrity, Jr. (collectively, the “Chapter 11 Cases”) in the United States Bankruptcy Court for the Southern District of New York (the “Bankruptcy Court”). [2] LATAM’s Chapter 11 Cases represent one of the largest bankruptcies filed in recent times, involving over $16 billion in liabilities and ultimately involving thirty-eight debtors, including six of LATAM’s eight main passenger airline affiliates and each of its three cargo airline affiliates. As detailed below, LATAM’s Chapter 11 Cases have involved a series of heavily contested matters, including four, multi-billion-dollar trial-like hearings in 2022 alone, in each of which LATAM ultimately prevailed.

At its core, these cases involved a series of interrelated, complex cross-border issues that have resulted in precedent-setting recognition proceedings in Chile and Colombia, as well as one of the first Brazilian-incorporated companies to seek chapter 11 relief, and a comprehensive restructuring of LATAM’s fleet. Throughout the cases, the cross-border nature of LATAM’s operations and restructuring required creative solutions to harmonize international legal regimes that often were in tension and the dedication of significant resources to overcome substantial opposition to nearly every major case development. Ultimately, this led to the confirmation of a plan of reorganization that will raise more than $8 billion in new money, principally through a series of securities offerings that were carefully crafted to honor Chilean corporate law while complying with U.S. securities and bankruptcy rules.


LATAM is the largest passenger airline group in South America and one of the largest airline groups in the world in terms of network connections and, as such, integrates South America into the globalized economy. LATAM has a domestic presence in five markets (Brazil, Chile, Colombia, Ecuador, and Peru) and intraregional and long-haul operations to five markets, servicing 137 different destinations as of December 31, 2021 within Latin America and in Europe, Oceania, the United States, and the Caribbean.

At the beginning of 2020, LATAM was financially and operationally one of the strongest groups in Latin America and was poised to continue its upward trajectory, projecting growth in all of its passenger segments, as well as its cargo business. Unfortunately, like so many businesses around the world—especially in the airline and travel industry—the unprecedented effects of the COVID-19 global pandemic significantly affected LATAM’s operations and its business plan. Beginning in March 2020, countries around the world, including each of those in which LATAM has its primary operations, announced severe travel restrictions and/or outright closure of their borders. The impact on the airline industry was almost instantaneous and has had profound, lasting effects. As a result, in April 2020, LATAM only operated at 5.7% of its capacity, with limited domestic flights and severely restricted international flights. In this adverse scenario, it was inevitable that LATAM would need to right-size its operations and restructure its indebtedness through a comprehensive restructuring. Consequently, on May 26, 2020, LATAM and twenty eight affiliates (the “Initial Debtors”) filed for relief under chapter 11 in the Bankruptcy Court.

Notably, the passenger and cargo affiliates that comprise LATAM’s Brazilian operations (the “Subsequent Debtors”) did not initially file for chapter 11 protection along with their affiliates, filing subsequently on July 7 and 9, 2020. Although the COVID-19 pandemic was materially uniform in its effects on LATAM’s business, the Subsequent Debtors had a smaller directed leased and financed fleet, and therefore lower amounts of associated financial obligations than the Initial Debtors, as well as a lower amount of direct debt obligations. Even so, the uncertainty surrounding the length and extent of travel restrictions, the expiration of certain short-term labor-related agreements, and the fact that local vendors restricted or impaired ordinary course trade terms in response to the chapter 11 filings of the Initial Debtors, together indicated that seeking chapter 11 protection of LATAM’s Brazilian affiliates was in the best interest of LATAM’s globally-integrated operations. Although at the time that LATAM’s Brazilian affiliates filed, there was no mechanism in place for cross-border recognition of the Chapter 11 Cases in Brazil, LATAM was able to mitigate any local impact through the approval of certain first day relief from the Bankruptcy Court.

Path to Confirmation

To successfully craft and confirm a chapter 11 plan, LATAM and its advisors had to navigate the restructuring of a large, multinational, and integrated company and to formulate a plan that complied not only with the Bankruptcy Code but also a number of local law considerations. In addition to the challenges facing any restructuring of this size and complexity, LATAM also successfully overcame various challenges from, among others, the United States Trustee, the Unsecured Creditors Committee (the “UCC”), and a number of ad hoc creditor and equity groups. Below is a selection of some of the of the key milestones that were achieved on the path to emergence:

From the beginning of the Chapter 11 Cases in May 2020 up through the plan effective date, LATAM worked towards completing the wholesale rightsizing of its prepetition fleet, comprising 340 aircraft, including resolving more than 1,100 filed claims with an asserted value topping $102 billion, nearly all on a fully consensual basis. In addition to those claims related to LATAM’s fleet obligations, the Debtors have worked to reconcile and resolve approximately 5,500 additional filed claims, largely on an uncontested basis. Indeed, as of September 30, 2022, LATAM has objected to or otherwise resolved more than 4,800 claims with a total value of approximately US$ 115.5 billion, over 50% of which were filed by claimants located outside the United States. Further, under the plan, an additional 1,350 litigation claims will ride through and be resolved in the ordinary course of the reorganized debtors’ operations.

Partially as a result of LATAM’s prepetition liquidity preserving measures, LATAM filed for chapter 11 relief with approximately $707 million in cash and cash equivalents. But the LATAM’s operational needs during the course of the Chapter 11 Cases were expected to far exceed this amount, and so LATAM focused on securing a commitment for financing to fund expenses during the Chapter 11 Cases. Notably, though governments throughout the world provided support to airlines suffering from the economic impacts of COVID-19, Latin-America-based airlines generally were not successful in securing financial support from their governments. However, LATAM was able to obtain commitments from its major shareholders to provide a portion of its required DIP financing pre-petition, which served as an important anchor to its ability to attract other sources of financing in bankruptcy. In September 2020, after a multi-day evidentiary hearing and around the-clock negotiations, LATAM secured approval of $2.45 billion in DIP financing, which ensured seamless operations during the chapter 11 process. The DIP facility featured a novel subordinated tranche, provided largely by a group of major shareholders, which enabled LATAM to secure third-party lenders for more senior tranches, and which has proven to be a model for multiple subsequent airline cases. The DIP has since been refinanced and transformed into a $3.9 billion DIP-to-exit facility, which enabled LATAM to emerge from chapter 11 without having to tap international debt markets in the event such financing was unavailable or overpriced.

On November 26, 2021, the Debtors filed their plan of reorganization, supported by a Restructuring Support Agreement (the “RSA”) entered into between LATAM, its largest shareholders, and holders of a majority of general unsecured claims against the LATAM parent entity. Under the plan, the Debtors will receive $8.192 billion of new money, comprising: (i) $800 million of cash generated by an equity rights offering; (ii) $4.642 billion of cash related to convertible notes; and (iii) $2.75 billion in exit financing (comprising $2.25 billion in new secured term loans and a $500 million undrawn revolving credit facility). Upon emergence, LATAM expects to have $7.5 billion of debt and $2.7 billion of liquidity.

In January 2022, LATAM won court approval of its $5.4 billion backstop commitment agreements, which were integral to the RSA and resulted in the backstop of billions of dollars in new money investments that will be essential to LATAM’s ability to exit bankruptcy well positioned to continue their prepetition success. The backstop arrangements in LATAM’s case are unique in that, whereas most commitments are in place for only a few months, LATAM obtained backstop commitments that, subject to certain conditions, could extend more than ten months—at a time when the parties faced significant risk due to overall uncertainty in the economy, the continued effects of the COVID-19 pandemic, and volatile fuel prices—thereby paving a way for LATAM’s successful exit from bankruptcy. The backstop agreements were opposed by several groups of minority creditors and, again after a multi-day evidentiary hearing, the Bankruptcy Court issued an eighty-five-page decision approving the backstop agreements in full and rejecting all arguments raised by the objectors, paving the way for LATAM to proceed to plan confirmation.

On March 21, 2022, the Bankruptcy Court entered an order approving LATAM’s disclosure statement, and LATAM shortly thereafter commenced the plan voting and solicitation process. The solicitation process ultimately resulted in overwhelming support for the plan, with over 81.95% of holders in amount of LATAM Airlines Group S.A. general unsecured claims, 100% in Class 7 claims, and 95.79% in amount of Class 1 claims voting to accept the plan.

In April 2022, the Bankruptcy Court rejected an attempt by the UCC to invalidate a $1.5 billion intercompany claim, which was an integral part of the plan’s global compromise, namely the unimpairment of two series of international bonds issued prepetition. Following a full-day evidentiary hearing, the Bankruptcy Court issued a forty-four-page opinion entirely siding with LATAM.

Beginning in May 2022, LATAM’s plan was originally opposed by nearly ten different parties, including the UCC, a local bond trustee, the U.S. Trustee, two separate ad hoc creditor groups, and certain minority equity holders. Through weeks of negotiation, LATAM was able to announce a comprehensive settlement with the local bond trustee and the UCC shortly before the commencement of the confirmation hearing. Nonetheless, other objectors pressed their claims during a hotly-contested, week-long evidentiary hearing. During those proceedings, the Bankruptcy Court heard in-depth fact and expert testimony and argument concerning a variety of complex U.S. and Chilean legal issues. In June 2022, the Bankruptcy Court issued a 125-page decision overruling every objection and finding that LATAM’s “Plan represents a delicate, intricate and integrated compromise of myriad claims, arguments, and rights.”

In August 2022, following the Bankruptcy Court’s confirmation of the plan, two creditor groups appealed the confirmation order to the United States District Court for the Southern District of New York (the “District Court”). On August 31, 2022 the District Court forcefully rejected both groups’ appeals, including one group’s request for a stay of the confirmation order, finding it would be “particularly inappropriate to forestall consummation of the Plan where the only harm to the appellant absent a stay is the possibility that the appellant may be unable to pursue a second appeal that is almost certain to fail.” A further appeal was granted by the United States Court of Appeals for the Second Circuit; the matter has been fully briefed and as of this writing is sub judice.

[[Most recently, in September 2022, LATAM registered with and received approval from the Chilean Financial Market Commission for the securities and convertible notes contemplated by LATAM’s plan. Then, after almost two-and-a-half years since the commencement of the Chapter 11 Cases, on November 3, 2022, LATAM’s plan became effective, marking the company’s successful completion of its reorganization and its emergence from chapter 11 as a stronger and more streamlined global enterprise.]]

[1] LATAM and its debtor affiliates are represented by Cleary Gottlieb Steen & Hamilton LLP and Togut Segal & Segal LLP.

[2] In re LATAM Airlines Group S.A. et al., Case No. 20-11254 (JLG).