Mabuhay Miles, older planes: PAL details collateral to win crucial financing

Billionaire Lucio Tan’s Philippine Airlines (PAL) is pledging 15 planes, spare engines and frequent flyer miles as collateral to secure additional loans under an ongoing restructuring process.

Following the filing of a Chapter 11 creditor protection plea in the United States that aims to wipe out $2.1 billion in debts, PAL is seeking to raise $505 million in debtor-in-possession (DIP) financing.

The loans will be backed by Tan, PAL’s controlling shareholder since 1993.

Based on the loan term sheet submitted by PAL’s lawyers to the Chapter 11 court, the DIP facility would be secured by eight “midlife” Airbus A320-200s and seven “mid-to-end of life” DHC 8-300/400 aircraft and their engines.

The loans would also be secured by five engines, including those manufactured by US-based GE Aviation and British multinational Rolls Royce Holdings used in PAL’s fleet of wide-body planes.

DIP facility

The carrier’s Mabuhay Miles loyalty program contracts were also pledged as collateral, according to the term sheet. The US court earlier allowed PAL to access the first $20 million in the $505-million DIP facility, a special type of fundraising for companies undergoing this type of restructuring.

The proposed lender for the DIP loans was Tan’s Buona Sorte Holdings Inc.

The DIP proceeds would be used to refinance bridge loans that were previously extended by Tan as well as for working capital and other expenses related to the Chapter 11 plea.

Before the Chapter 11 filing, Tan provided bridge financing to PAL worth a combined $100 million, which PAL’s lawyers said helped the flag carrier continue operations and “avoid a value-destructive free fall into bankruptcy.”

The DIP facility would be divided into two tranches amounting to $250 million and $255 million with an interest rate of 9.5 percent per annum, the term sheet showed.

$125-million exit loan

PAL is also seeking an optional $125-million exit loan, with an interest rate of 10.5 percent, to support operations after emerging from the Chapter 11 process.

PAL’s restructuring advisor Seabury International Corporate Finance LLC earlier explained they were unable to find more favorable terms after meeting with 115 potential lenders over a six- to eight-week period.

Seabury managing director Douglas Walker said none of the parties “were willing to provide such financing on equivalent or more favorable terms.”

“Some were unresponsive or did not want to invest capital in an airline during a global pandemic, others would have required economic terms less favorable to the debtor, and none were willing to provide the debtor with a conversion option into the proposed mix of equity and long-term unsecured debt,” he said. INQ