October 27, 2021 | 4:26 p.m.
MANILA, Philippines – Taipan Lucio Tan is working hard to save his loss-making company Philippines Airlines Inc. (PAL) as he prepares to lend money to the national carrier to complete raising the important financing he needs during its restructuring supported by its creditors.
Buona Sorte Holdings Inc., led by Tan, to grant 5-year loan to PAL in the amount of $ 250 million to complement the $ 505 million financing in debt and equity the airline needs to stay liquid as it seeks bankruptcy protection in the United States, according to a regulatory filing released Wednesday. Buona Sorte is the majority shareholder of Trustmark Holdings Corp., which owns a majority stake in PAL Holdings Inc., the parent company of the national carrier.
PAL is currently pursuing a pre-established restructuring plan that would see more than $ 2 billion of its debts canceled and its aircraft fleet reduced by 25%. The carrier filed for Chapter 11 bankruptcy in New York City on September 3 after a pandemic-induced slump in travel demand widened the company’s losses leading up to the health crisis.
But as it stands, Tan is the only one who raises the funds his airline needs to survive.
Documents filed on the exchange showed that the remaining $ 255 million of the P 505 million financing package would be in the form of a private placement from Tan’s Buona Sorte to PAL Holdings. As part of the transaction, Buona Sorte will directly purchase 10.2 billion ordinary shares of PAL Holdings at 1.25 P each, with full payment expected before year end.
To make room for Buona Sorte’s direct stake in the company, PAL Holdings will increase its authorized share capital to 30 billion pesos from the current 13.5 billion pesos. Once the transaction is completed, Buona Sorte and its subsidiary Trustmark will hold a combined 82.97% stake in PAL’s parent company.
ANA Holdings, owner of the Japanese company All Nippon Airways and currently the second largest shareholder of PAL Holdings, will not participate in the fundraising activity. After the transaction, ANA’s stake will increase to 4.78% from the current 9.5% due to the capital increase.
At the same time, PAL Holdings’ free float would drop to 10%, below the 15% level that listed companies must maintain.
PAL expects “improved” profitability and liquidity by the end of 2025. The airline expects to exit the Chapter 11 process in “a few months”.
Once the bankruptcy process is complete, PAL will borrow $ 150 million from foreign investors “to facilitate post-restructuring activities.” The airline’s offshore creditors can convert the loans into shares of PAL Holdings through a “swap” which is expected to take place in the first quarter of 2022.
PAL said it expects “most, if not all,” of the external creditors to participate in the swap, which would increase foreign ownership in its parent company.