Numerous creditors are objecting to Aeromexico’s restructuring plan, claiming the plan is marred by conflicts of interest involving parties including Delta Air Lines.
Central to the objections is an arrangement between Delta Air Lines and Apollo Management Holdings, the finance company providing Aeromexico with $1 billion in financing as it works through restructuring.
Specifically, in November 2020, Delta acquired rights to purchase from Apollo $185 million of the $1 billion debt. Critically, Delta and Apollo have ability to convert debt into stock of the reorganised Aeromexico, and they intend to do so, court papers say.
Seven months later, in a 30 June 2021 letter, Delta notified Aeromexico board chair Javier Arrigunaga of the financing arrangement, papers show.
As it stands, the deal will leave Delta holding 20% of Aeromexico’s equity when Aeromexico emerges from bankruptcy protection. Apollo will have 22%, papers show.
Delta currently owns about half of Aeromexico, and Delta holds two seats on Aeromexico’s board, including one occupied by Delta chief executive Ed Bastian.
Aeromexico parent Grupo Aeromexico filed for bankruptcy protection on 30 June 2020 in US Bankruptcy Court for the Southern District of New York.
Some creditors are now opposing the company’s restructuring and financing plans, alleging conflicts of interest. Those creditors have filed objections in court.
They say Aeromexico and its board members – including Bastian – have a fiduciary duty to maximise the company’s value for the benefit of creditors. But Delta – and Apollo – have opposing interests, they say.
Specifically, Delta and Apollo are “incentivised… to lobby for a relatively low plan valuation in the name of converting their [financing] into as large of an equity stake in the reorganisation [airline] as possible”, a group of creditors allege in an objection filed on 2 December.
Neither Delta nor Aeromexico responded to requests for comment.
The creditors also note that Delta waited seven months to notify Aeromexico of the arrangement with Apollo, by which time Aeromexico was well along in its reorganisation plan.
Three other large creditors have also appealed to Delta and Apollo for more information.
“Is there a conflict for Delta, as it is economically aligned with Apollo to advocate for the lowest possible equity valuation?” those creditors say in a 9 December letter to Delta’s and Apollo’s boards.
The creditors include Invictus Global Management, Corvid Peak Capital Management and Hain Capital Group. Invictus holds claims against Aeromexico totalling about $17 million, while Corvid has claimed $8.4 million and Hain has claimed about $15.8 million.
“How can Delta, as an Aeromexico board member, discharge its fiduciary duties to maximise value for the benefit of Aeromexico creditors when it is clearly economically adverse to the creditors it is supposed to serve?” the letter adds.