Lucio Tan prepares $250-M loan to cash-strapped PAL

MANILA, Philippines — Taipan Lucio Tan is pulling out all the stops to save his loss-making Philippines Airlines Inc. (PAL) as he prepares to lend money to the national carrier to complete raising the hefty financing it needs during its creditor-backed restructuring.

Tan-led Buona Sorte Holdings Inc. will extend a 5-year loan to PAL amounting to $250 million to complete the $505-million debt-and-equity funding that the airline needs to stay liquid as it seeks bankruptcy protection in the United States, according to a regulatory filing on Wednesday. Buona Sorte is the controlling shareholder of Trustmark Holdings Corp., which owns a majority stake in PAL Holdings Inc., the flag carrier’s parent company.

PAL is currently pursuing a pre-arranged restructuring plan that would see over $2 billion of its debts forgiven and its fleet of aircraft reduced by 25%. The carrier filed for Chapter 11 bankruptcy in New York last September 3 after a pandemic-induced collapse in travel demand widened the company’s losses that predate the health crisis.

But as it stands, Tan is alone in raising the money that his airline needs to survive.

Filings at the stock exchange showed the remaining $255 million of the P505-million financing package would be in the form of a private placement from Tan's Buona Sorte to PAL Holdings. Under this transaction, Buona Sorte will directly buy 10.2 billion common shares in PAL Holdings at P1.25 each, with the full payment expected before the end of the year.

To give room for Buona Sorte’s direct stake in the company, PAL Holdings will increase its authorized capital stock to P30 billion from the current P13.5 billion. Once the transaction is completed, Buona Sorte and its subsidiary Trustmark will have a combined stake of 82.97% in PAL’s parent firm.

ANA Holdings, owner of Japan’s All Nippon Airways and currently PAL Holdings’ second largest shareholder, will not participate in the fundraising activity. Post-transaction, ANA’s ownership will shrink to 4.78% from the current 9.5% as a result of the capital hike.

At the same time, PAL Holdings’ public float would sink to 10%, below the 15% level that publicly-listed companies must maintain.

PAL sees “improved” profitability and liquidity by the end of 2025. The airline is hoping to exit the Chapter 11 process in “a few months”.

Once the bankruptcy process is over, PAL will borrow $150 million from foreign investors “to facilitate post-restructuring activities”. Offshore creditors of the airline may convert the loans into shares in PAL Holdings through a “swap” that is targeted to take place in the first quarter of 2022.

PAL said it expects "most, if not all," external creditors to participate in the swap, which would hike foreign ownership in its parent firm.