PAL gets US court’s nod to access $505M financing

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  • Philippine Airlines received US court approval to access its debtor-in-possession (DIP) financing totaling US$505 million
  • A casualty of COVID-related travel restrictions, PAL filed for bankruptcy in New York on September 3
  • The full access to DIP financing gives the airline additional liquidity to meet its obligations and continue operating as usual
  • The US bankruptcy court also approved PAL’s motions for customer programs, critical and foreign vendors, employee compensation and authorization to implement the restructuring support agreements with stakeholders

Philippine Airlines (PAL) on October 1 received US court approval to access its debtor-in-possession (DIP) financing totaling US$505 million, a core feature of the flag carrier’s restructuring plan.

The airline filed for bankruptcy on September 3.

“With approval to fully access our DIP 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,” PAL chief financial officer Nilo Thaddeus Rodriguez said in a statement.

The DIP financing comprises a $250-million first lien secured Tranche A multi-draw term loan, of which $20 million was drawn following approval by a U.S. bankruptcy judge during a court hearing last September 9, and a second lien secured Tranche B multi-draw term loan facility of $255 million.

“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,” PAL president and chief operating officer Gilbert Santa Maria said.

In addition to approval of the DIP financing, the US Bankruptcy Court for the Southern District of New York granted other approvals on a final basis, including PAL’s motions for customer programs, critical and foreign vendors, employee compensation and authorization to implement the restructuring support agreements with stakeholders.

PAL said these approvals will enable it “to emerge as a stronger and better-capitalized airline.”

The airline said it will continue to operate flights and 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.

The October 1 approval follows the September 9 decision of US Bankruptcy Court in New York Judge Shelley Chapman to approve all motions for PAL’s voluntary restructuring under the Chapter 11 process.

READ: PAL gets US court nod to access $20M financing

The approval includes authorizing PAL to access the first $20 million of its DIP, to be provided by PAL’s parent company PAL Holdings, Inc. (PHI).

Last September 27, PHI’s Board approved the increase in authorized capital stock from P13.5 billion to P30 billion to accommodate fresh capital from an affiliate company of the Lucio Tan Group of Companies. PHI is under the Tan Group.

READ: PAL parent company hikes capital to P30B

On September 22, PAL petitioned a Pasay City trial court to formally recognize the flag carrier’s Chapter 11 proceedings as part of the Financial Insolvency and Rehabilitation Act of 2010.

PAL’s restructuring plan provides over $2 billion in permanent balance sheet reductions and allows the airline to reduce fleet capacity by 25%. Aside from the DIP, it includes $150 million of additional debt financing from new investors.