Argentinean airline, Aerolineas Argentinas, has been granted yet another chance to come up with a plan to save itself from bankruptcy by its Spanish owner, Sociedad Estatal de Participaciones (SEPI). Shareholders in the troubled company, including SEPI (85%), trade unions (10%) and the Argentinean government (5%), were due to meet last week to discuss how to reduce its $874 million debts, but the meeting has now been put back to October 15.

Unions were keen on the postponement as it buys them some time to come up with an alternative to SEPI's plan to drastically cut costs, which involves a substantial loss of jobs. The unions and the government have seen this as unacceptable, and have suggested that up to $600 million could be raised to save the airline through bridge financing and $300 million of convertible bonds.

The situation will raise concerns for investors in the airline's two $50 million securitizations, Condor and Aerocard, although Standard & Poor's believe that the airline can maintain operations until the bonds mature next year.

The agency downgraded the Aerocard notes from A minus to BB in January (ASRI 1/17/2000 p.1), and has the deal on ratings watch negative, but is confident that the collateral will still perform.

Juan Pablo de Mollein, ratings analyst at S&P in Buenos Aires, said that bondholders held meetings in July to discuss the situation and agreed not to take action at this time. "The most significant thing that happened was that noteholders, as well as other participants in the transaction met in July to discuss what to do with the bonds," he said. "The main topic was to see whether it was convenient to accelerate the deal or not."

De Mollein says that the bondholders decided not to act, when they concluded that the collateral was likely to perform, despite the difficulties. "Because this is a future flow transaction, its performance is not based on the financial performance of the company," he explained. "The only thing that matters is that the company keeps on going - keeps flying - because if it does, it will keep on generating income and have sufficient underlying assets. If that happens, even if the company defaults, the transaction will keep on going and after realizing that was the situation, the investors decided not to do anything with the bonds."

"When we downgraded the bonds in January, the projections were well below what we expected, American Airlines had withdrew its interest in the company, and it was a very problematic situation," he continued. "But over the last two months, unions are starting to negotiate with the major shareholders and we are more positive in seeing the company still operating at least for the remaining life of the deal. They are due to mature next year, but of course we will continue to monitor the situation closely."

Subscribe Now

Access to a full range of industry content, analysis and expert commentary.

30-Day Free Trial

No credit card required. Access coverage of the securitization marketplace, including breaking news updated throughout the day.