Banks to gain equity in PAL Holdings with debt swap
Local banking tycoons are riding it out with taipan Lucio Tan’s Philippine Airlines (PAL), taking front-row seats in the national carrier’s recovery as its newest shareholders.
Philippine Airlines, through its listed parent company PAL Holdings Inc., is following through with the next steps after its successful exit from US Chapter 11 bankruptcy proceedings that slashed over $2 billion in debts.
PAL Holdings said in a stock exchange filing late Tuesday this will involve swapping shares of unsecured creditors from Philippine Airlines to PAL Holdings.
Unsecured creditors, which include domestic banking giants and international aircraft leasing companies, now own 20.5 percent of Philippine Airlines after they agreed to convert loans into equity, giving them a stake in the flag carrier.
A banking source told the Inquirer the decision to become a shareholder was the best outcome as Philippine Airlines grappled with historic losses during the unprecedented COVID-19 pandemic.
Philippine Airlines’ local lenders were Tan’s Philippine National Bank ($89.03 million), Ng-led Asia United Bank ($75.07 million), the Sy family’s China Banking Corp. ($65.39 million) and Aboitiz-led Union Bank of the Philippines ($20 million).
Chapter 11 court filings showed the banks had agreed to the debt to equity deal, which will give Philippine National Bank 19.85 million shares in Philippine Airlines, Asia United Bank (17.16 million shares), China Banking (14.88 million shares) and UnionBank (4.57 million shares).
In its filing, PAL Holdings said it was preparing for the stock swap and has hired a valuation provider to finalize the terms of the offer.
“It is expected that all the new shareholders [Philippine Airlines’ former unsecured creditors] will take part in the share swap which will result in [Philippine Airlines] being a wholly owned subsidiary of issuer,” said PAL Holdings, whose shares remain under a trading suspension.
The holding company also disclosed that Philippine Airlines was in negotiations with international lenders to borrow another $100 million via a three-year term loan deal.
The financing would support ongoing operations and fortify the company’s cash reserves of $391 million following its exit from Chapter 11 proceedings at the end of 2021.
Earlier, Tan bankrolled a $505-million capital infusion to support Philippine Airlines while under Chapter 11.
Apart from reducing debts, Philippine Airlines is streamlining its business model, returning over 20 planes equivalent to 30 percent of its passenger capacity and successfully negotiated a three-year loan extension from secured creditors.
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