LATAM Airlines Group S.A.

UNITED STATES BANKRUPTCY COURT 	NOT FOR PUBLICATION
SOUTHERN DISTRICT OF NEW YORK
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In re:
LATAM Airlines Group S.A., et al.,
Debtors.1
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Case No. 20-11254 (JLG)
Chapter 11
(Jointly Administered)
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MEMORANDUM DECISION ON CONFIRMATION OF THE JOINT PLAN
OF REORGANIZATION OF LATAM AIRLINES GROUP, S.A. ET AL.
UNDER CHAPTER 11 OF THE BANKRUPTCY CODE
A P P E A R A N C E S :
CLEARY GOTTLIEB STEEN &
HAMILTON LLP
Counsel for the Debtors and Debtors
in Possession
One Liberty Plaza
New York, New York 10006
By: 	Jeffrey A. Rosenthal, Esq.
Lisa M. Schweitzer, Esq.
David H. Herrington, Esq.
Abena A. Mainoo, Esq.
1 	The Debtors in these chapter 11 cases, along with the last four digits of each Debtor’s tax identification number
(as applicable), are: LATAM Airlines Group S.A. (59-2605885); Lan Cargo S.A. (98-0058786); Transporte Aéreo
S.A. (96-9512807); Inversiones Lan S.A. (96-5758100); Technical Training LATAM S.A. (96-847880K); LATAM
Travel Chile II S.A. (76-2628945); Lan Pax Group S.A. (96-9696800); Fast Air Almacenes de Carga S.A. (96-
6315202); Línea Aérea Carguera de Colombia S.A. (26-4065780); Aerovías de Integración Regional S.A. (98-
0640393); LATAM Finance Ltd. (N/A); LATAM Airlines Ecuador S.A. (98-0383677); Professional Airline Cargo
Services, LLC (35-2639894); Cargo Handling Airport Services, LLC (30-1133972); Maintenance Service Experts,
LLC (30-1130248); Lan Cargo Repair Station LLC (83-0460010); Prime Airport Services Inc. (59-1934486);
Professional Airline Maintenance Services LLC (37-1910216); Connecta Corporation (20-5157324); Peuco Finance
Ltd. (N/A); Latam Airlines Perú S.A. (52-2195500); Inversiones Aéreas S.A. (N/A); Holdco Colombia II SpA (76-
9310053); Holdco Colombia I SpA (76-9336885); Holdco Ecuador S.A. (76-3884082); Lan Cargo Inversiones S.A.
(96-9696908); Lan Cargo Overseas Ltd. (85-7752959); Mas Investment Ltd. (85-7753009); Professional Airlines
Services Inc. (65-0623014); Piquero Leasing Limited (N/A); TAM S.A. (N/A); TAM Linhas Aéreas S.A. (65-
0773334); Aerolinhas Brasileiras S.A. (98-0177579); Prismah Fidelidade Ltda. (N/A); Fidelidade Viagens e
Turismo S.A. (27-2563952); TP Franchising Ltda. (N/A); Holdco I S.A. (76-1530348) and Multiplus Corredora de
Seguros Ltda. (N/A). For the purpose of these chapter 11 cases, the service address for the Debtors is: 6500 NW
22nd Street Miami, FL 33131.
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TOGUT, SEGAL & SEGAL LLP
Counsel to the Debtors and Debtors in
Possession as to the Conflicted Claims
One Penn Plaza, Suite 3335
New York, New York 10119
By: 	Albert Togut, Esq.
Kyle J. Ortiz, Esq.
Bryan M. Kotliar, Esq.
KRAMER LEVIN NAFTALIS &
FRANKEL LLP
Counsel to the Parent Ad Hoc
Claimant Group
1177 Avenue of the Americas
New York, New York 10036
By: 	Kenneth H. Eckstein, Esq.
Rachael L. Ringer, Esq.
David E. Blabey Jr., Esq.
Natan Hamerman, Esq.
Douglas Buckley, Esq.
Andrew Pollack, Esq.
WHITE & CASE LLP
Counsel for the Ad Hoc Group of
LATAM Bondholders
1221 Avenue of the Americas
New York, New York 10020
By: 	John K. Cunningham, Esq.
Brian D. Pfeiffer, Esq.
Gregory M. Starner, Esq.
Joshua Weedman, Esq.
Kathryn Sutherland-Smith, Esq.
200 South Biscayne Blvd., Suite 4900
Miami, Florida 33131
By: 	Richard S. Kebrdle, Esq. (admitted pro hac vice)
Varoon Sachdev, Esq. (admitted pro hac vice)
WACHTELL, LIPTON, ROSEN & KATZ
Counsel for Costa Verde
Aeronáutica S.A. and Lozuy S.A.
51 West 52nd Street
New York, New York 10019
By: 	Richard G. Mason, Esq.
John R. Sobolewski, Esq.
Angela K. Herring, Esq.
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ALSTON & BIRD LLP
Counsel for Qatar Airways
Investments (UK) Ltd.
90 Park Avenue
New York, New York 10016
By: 	Gerard S. Catalanello, Esq.
James J. Vincequerra, Esq.
DAVIS POLK & WARDWELL LLP
Counsel for Delta Air Lines, Inc
450 Lexington Avenue
New York, New York 10017
By: 	Marshall S. Huebner, Esq.
Lara Samet Buchwald, Esq.
Adam L. Shpeen, Esq.
ARNOLD & PORTER KAYE
SCHOLER LLP
Counsel to the Ad Hoc Group of
Unsecured Claimants
70 West Madison Street, Suite 4200
Chicago, Illinois 60602
By: 	Michael D. Messersmith, Esq. (admitted pro hac vice)
Sarah Gryll, Esq.
250 West 55th Street
New York, New York 10019
By: 	Jeffrey A. Fuisz, Esq.
Robert T. Franciscovich, Esq.
Madelyn Nicolini, Esq.
WILLIAM K. HARRINGTON
UNITED STATES TRUSTEE, REGION 2
201 Varick Street, Room 1006
New York, New York 10014
By: 	Brian S. Masumoto, Esq.
PAUL HASTINGS LLP
Counsel for the TLA Claimholders
Group
200 Park Avenue
New York, New York 10166
By: 	Daniel A. Fliman, Esq.
Christopher M. Guhin, Esq.
Emily L. Kuznick, Esq.
John F. Iaffaldano, Esq.
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HUNTON ANDREWS KURTH LLP
Counsel to Columbus Hill Capital
Management, L.P.
200 Park Avenue
New York, New York 10166
By: 	Paul N. Silverstein, Esq.
Brian Clarke, Esq.
Philip M. Guffy, Esq.
K&L GATES LLP
Counsel to 777 Components Leasing,
LLC, GA Telesis, LLC and TC
Skyward Aviation U.S., Inc.
599 Lexington Avenue
New York, New York 10022
By: 	Robert T. Honeywell, Esq.
MILBANK LLP
Counsel to Citibank, N.A. and Banco
Citibank S.A., as L/C Issuers
55 Hudson Yards
New York, New York 10001
By: 	Tyson M. Lomazow, Esq.
Eric K. Stodola, Esq.
Andrew C. Harmeyer, Esq.
Mr. Jose M. Orozco Jr.
Appearing Pro Se
1173 Front Street
San Diego, CA 92101
DECHERT LLP
Counsel to the Official Committee
of Unsecured Creditors
1095 Avenue of the Americas
New York, New York 10036
By: 	Allan S. Brilliant, Esq.
G. Eric Brunstad, Jr., Esq.
Craig P. Druehl, Esq.
David A. Herman, Esq.
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PAUL HASTINGS LLP
Counsel to Banco del Estado de Chile,
in its capacity as indenture trustee
under the Chilean Local Bonds Series
A through D and Series E issued by
LATAM Airlines Group S.A.
200 Park Avenue
New York, New York 10166
By: 	Pedro A. Jimenez, Esq.
Andrew Tenzer, Esq.
Nicholas Bassett, Esq.
Douglass Barron, Esq.
HON. JAMES L. GARRITY, JR.
U.S. BANKRUPTCY JUDGE
Introduction2
LATAM Airlines Group S.A. (“LATAM Parent”) and certain of its affiliates, are debtors
and debtors in possession in these Chapter 11 Cases (the “Debtors”). The matter before the Court
is the Debtors’ request for the entry of an order (the “Confirmation Order”) confirming their
Seventh Revised Joint Plan of Reorganization of LATAM Airlines Group, S.A. et. al. Under
Chapter 11 of the Bankruptcy Code [ECF No. 5331] dated May 11, 2022 (as may be revised,
amended, restated, supplemented, altered or modified from time to time, the “Plan”), and as
supplemented by the Plan Supplement (as may be revised, amended, restated, supplemented,
altered or modified from time to time) pursuant to section 1129 of title 11 of the United States
Code (as amended, the “Bankruptcy Code”).
The following parties in interest filed objections to Plan confirmation (collectively, the
“Plan Objections”): William K. Harrington, as the United States Trustee for Region 2 (the “U.S.
2 	Capitalized terms used but otherwise not defined shall have the meanings ascribed herein or in the Plan or
Disclosure Statement as applicable. References herein to “[ECF No.__]” are to documents filed on the electronic
docket in these Chapter 11 Cases (Case No. 20-11254).
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Trustee”),3 the TLA Claimholders Group (the “TLA Claimholders”),4 Columbus Hill
Management, L.P. (“Columbus Hill”),5 the Ad Hoc Group of Unsecured Claimants (the “A&P
Ad Hoc Group”),6 and Mr. Jose Manuel Orozco.7 In addition, 777 Components Leasing, LLC
and Certain Lenders filed a limited objection to confirmation (the “777 Limited Objection”),8
and Citibank, N.A. and Banco Citibank S.A. jointly filed a statement and reservation of rights in
connection with the Plan (the “Citibank Statement”).9 On May 2, 2022, each of the Official
Committee of Unsecured Creditors (the “Committee”) and Banco del Estado de Chile
(“BancoEstado”), in its capacity as indenture trustee under the Chilean Local Bonds Series A
through D and Series E issued by LATAM Parent, also filed an objection to the Plan.10 Both
3 	Objection of the U.S. Trustee to Revised Joint Plan of Reorganization of LATAM Airlines Group S.A. et al.,
Under Chapter 11 of the Bankruptcy Code [ECF No. 5176] (the “U.S. Trustee Obj.”); Supplemental Objection to
Confirmation and Mot. of the U.S. Trustee to Designate the Votes of Creditors Pursuant to Section 1126(e) of the
Bankruptcy Code for the Debtors’ Violation of Section 1125(b) of the Bankruptcy Code [ECF No. 5217] (the “U.S.
Trustee Suppl. Obj.”).
4 	Objection of the TLA Claimholders Group to Confirmation of the Debtors’ Proposed Plan [ECF No. 5175] (the
“TLA Claimholders Obj.”); Supplemental Objection of the TLA Claimholders Group to Confirmation of the
Debtors’ Proposed Plan [ECF No. 5485] (the “TLA Claimholders Suppl. Obj.”).
5 	Columbus Hill Capital Management’s Objection to Confirmation of the Joint Plan of Reorganization of
LATAM Airlines Group S.A., et al., Under Chapter 11 of the Bankruptcy Code [ECF No. 5177] (the “Columbus
Hill Obj.”).
6 	Objection of the Ad Hoc Group of Unsecured Claimants to Confirmation of the Debtors’ Joint Plan of
Reorganization [ECF No. 5202] (the “A&P Ad Hoc Group Obj.”).
7 	Petitioner Objection of Jose Manuel Orozco [ECF No. 5103] (the “Orozco Objection”).
8 	Limited Objection of 777 Components Leasing, LLC and Certain Lenders to Debtors’ Joint Plan of
Reorganization under Chapter 11 of the Bankruptcy Code [ECF No. 5171].
9 	Statement and Reservation of Rights of Citibank, N.A. and Banco Citibank S.A. in Connection with the
Confirmation of the Joint Plan of Reorganization of LATAM Airlines Group S.A., et al. Under Chapter 11 of the
Bankruptcy Code [ECF No. 5174].
10 	Objection of the Official Committee of Unsecured Creditors to Confirmation of the Debtors’ Sixth Revised
Joint Plan of Reorganization of LATAM Airlines Group S.A. et al., Under Chapter 11 of the Bankruptcy Code [ECF
No. 5195]; Reservation of Rights and Supplement to the Objection of the Official Committee of Unsecured
Creditors to Confirmation of the Debtors’ Sixth Revised Joint Plan of Reorganization of LATAM Airlines Group
S.A. et al., Under Chapter 11 of the Bankruptcy Code. [ECF No. 5281]; Objection of Banco del Estado de Chile to
the Joint Plan of Reorganization of LATAM Airlines Group, S.A. et al Under Chapter 11 of the Bankruptcy Code
[ECF No. 5207].
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parties have since withdrawn their objections.11 The Debtors filed the Debtors Omnibus Reply12
to the Plan Objections, the 777 Limited Objection and the Citibank Statement. The Ad Hoc
Group of LATAM Bondholders (the “W&C Ad Hoc Group”), Parent Ad Hoc Claimant Group
(the “Parent GUC Ad Hoc Group”), Costa Verde Aeronáutica S.A. and Lozuy S.A., Delta Air
Lines, Inc. (“Delta”) and Qatar Airways Investments (UK) Ltd. (“Qatar”) filed statements in
support of Plan confirmation.13
The Court conducted an evidentiary hearing with respect to Plan confirmation.14 On the
record of that hearing, the Court overruled the Orozco Objection, and addressed and resolved the
777 Limited Objection and the matters raised in the Citibank Statement. The Court incorporates
those rulings herein and will not further consider those matters. Based on the evidence of record
11 	Notice of Withdrawal of Objection of Banco del Estado de Chile to Joint Plan of Reorganization of LATAM
Airlines Group S.A., et al. under Chapter 11 of the Bankruptcy Code [ECF No. 5335]; Notice of Withdrawal of
Objections of the Official Committee of Unsecured Creditors to Confirmation of the Debtors’ Revised Joint Plan of
Reorganization [ECF No. 5336].
12 	Memorandum of Law in Support of Confirmation and Omnibus Reply to Objections to Confirmation of the
Plan of Reorganization of LATAM Airlines Group S.A., Et Al., Under Chapter 11 of the Bankruptcy Code [ECF
No. 5373]. The Debtors also filed two supplemental replies specific to the U.S. Trustee Supplemental Objection and
the TLA Claimholders Supplemental Objection. See Debtors Reply to the U.S. Trustee’s Supplemental Objection to
Confirmation of the Debtors’ Plan of Reorganization [ECF No. 5374] (the “Reply to U.S. Trustee Suppl. Obj.”);
Debtors’ Reply to the Supplemental Objection of the TLA Claimholders Group [ECF No. 5486] (the “Reply to TLA
Claimholders Suppl. Obj.”).
13 	Statement of the Ad Hoc Group of LATAM Bondholders in Support of Confirmation of the Seventh Revised
Joint Plan and Reservation of Rights to the Objection of the Official Committee of Unsecured Creditors and Banco
del Estado de Chile [ECF No. 5343]; Parent Ad Hoc Claimant Group’s Reply to Plan Objections [ECF No. 5355]
(the “Parent GUC Ad Hoc Group Reply”); Statement of Costa Verde Aeronautica S.A. and Lozuy S.A. in Support
of Confirmation of the Debtors’ Plan of Reorganization [ECF No. 5352]; Statement of Delta Air Lines, Inc. in
Support of Confirmation of Debtors’ Modified Seventh Revised Joint Plan of Reorganization Under Chapter 11 of
the Bankruptcy Code [ECF No. 5354]; and (I) Statement of Qatar Airways Investments (UK) Ltd. In Support of
Confirmation of the Joint Plan of Reorganization of LATAM Airlines Group, S.A., Et Al. Under Chapter 11 of the
Bankruptcy Code, (II) Reply to the Obj. Thereto, And (III) Reservation of Rights Thereto [ECF No. 5353].
14 	May 17, 2022 Hr’g Tr. [ECF No. 5511] (the “May 17, 2022 Hr’g Tr. – Public Session”); May 17, 2022 Hr’g Tr.
(Sealed Portion) [not filed]; May 18, 2022 Hr’g Tr. [ECF No. 5499]; May 20, 2022 Hr’g Tr. [ECF No. 5513] (the
“May 20, 2022 Hr’g Tr. – Public Session”); and May 20, 2022 Hr’g Tr. (Sealed Portion) [ECF No. 5662].
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and for the reasons stated herein, the Court overrules the remaining Plan Objections and
confirms the Plan. The Court will enter an appropriate Confirmation Order. 15
Jurisdiction
The Court has jurisdiction to consider this matter pursuant to 28 U.S.C. §§ 157 and 1334
and the Amended Standing Order of Reference from the United States District Court for the
Southern District of New York dated January 31, 2012 (Preska, C.J.). This matter is a core
proceeding pursuant to 28 U.S.C. § 157(b).
Background
LATAM Parent is a publicly traded company incorporated in Chile. See Alfonsín First
Day Decl. ¶¶ 5, 14.16 LATAM 17 is Latin America’s leading airline group, with a history
extending back ninety years and boasting one of the largest route networks in the world. Id. ¶ 2.
Before the onset of the COVID-19 pandemic, LATAM had a total fleet of 340 aircraft
(comprised of aircraft operated by LATAM and aircraft that are leased to third parties), and
offered passenger transportation services to 145 different destinations in twenty-six countries,
including domestic flights in Argentina, Brazil, Chile, Colombia, Ecuador and Perú and
international services within Latin America as well as to the United States, Europe, the
Caribbean, Oceania, Asia and Africa. Id. ¶¶ 3, 16-18. While the majority of LATAM’s revenues
have traditionally come from its passenger airline services, LATAM also offers cargo-related
15 	This constitutes the Court's findings of fact and conclusions of law pursuant to Rule 52(a) of the Federal Rules
of Civil Procedure, made applicable here pursuant to Rules 7052 and 9014(c) of the Federal Rules of Bankruptcy
Procedure (the “Bankruptcy Rules”).
16 	Debtors Tr. Ex. 24 (Declaration of Ramiro Alfonsín Balza In Support of First Day Motions and Applications in
Compliance with Local Rule 1007-2) (the “Alfonsín First Day Decl.”).
17 	LATAM Parent, and its debtor and non-debtor subsidiaries and affiliates are collectively referred to as
“LATAM.”
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services to 151 destinations in twenty-nine countries. Id. ¶¶ 7, 22-23. In 2019, LATAM’s
consolidated revenues were over $10 billion. Id. ¶ 17.
On May 26, 2020 (the “Initial Petition Date”), LATAM Parent and twenty-eight affiliates
(collectively with LATAM Parent the “Initial Debtors”) filed voluntary petitions under chapter
11 of the Bankruptcy Code in this Court (the “Initial Chapter 11 Cases”). On July 7 and 9, 2020
(the “Subsequent Petition Date” and, together with the Initial Petition Date, as applicable to each
Debtor, the “Petition Date”), nine additional LATAM affiliates (the “Subsequent Debtors” and
together with the Initial Debtors, the “Debtors”) filed voluntary petitions under chapter 11 of the
Bankruptcy Code (the “Subsequent Chapter 11 Cases” and together with the Initial Chapter 11
Cases, the “Chapter 11 Cases”). Since the Petition Date, the Debtors have continued to operate
their businesses and manage their properties as debtors-in-possession pursuant to sections
1107(a) and 1108 of the Bankruptcy Code. The Chapter 11 Cases are jointly administered for
procedural purposes only. See Order Granting Motion for Joint Administration [ECF No. 34].
On May 27, 2020, the Grand Court of the Cayman Islands granted the applications of
certain of the Debtors for the appointment of provisional liquidators pursuant to section 104(3) of
the Companies Law (2020 Revision). See Disclosure Statement (defined below) § IV.A.4. On
June 4, 2020, the 2nd Civil Court of Santiago, Chile issued an order recognizing the Chapter 11
Cases with respect to LATAM Parent., Lan Cargo S.A., Fast Air Almacenes de Carga
S.A., Latam Travel Chile II S.A., Lan Cargo Inversiones S.A., Transporte Aéreo S.A.,
Inversiones Lan S.A., Lan Pax Group S.A. and Technical Training LATAM S.A. Id. On June 12,
2020, the Superintendence of Companies of Colombia granted recognition to the Chapter 11
Cases. Id.
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On June 5, 2020, the U.S. Trustee appointed the Committee. See Notice of Appointment
of Official Committee of Unsecured Creditors [ECF No. 115]. No trustee or examiner has been
appointed in any of these Chapter 11 Cases.
In June 2021, the Debtors began distributing to certain interested parties, subject to
non-disclosure agreements, an indicative term sheet for a plan of reorganization and associated
exit funding for review and feedback and negotiating over sixty non-disclosure agreements with
qualified, interested parties in the process. Herlihy Report at 59.18 Between September and
October 2021, the Debtors received non-binding and preliminary proposals and responses from
multiple groups of key stakeholders, including: (i) the Parent GUC Ad Hoc Group, (ii) the W&C
Ad Hoc Group, (iii) certain of the Debtors’ largest shareholders, comprising of Costa Verde
Aeronáutica S.A. (“CVA”) and Inversiones Costa Verde Ltda y Cia, en Comandita por Acciones
(“CVL”, together with CVA, “Costa Verde”), Delta and Qatar (together with Delta and CVA,
and any Affiliate Transferee (as defined in the Restructuring Support Agreement), the “Backstop
Shareholders”). Id. The Debtors engaged with these parties regarding potential exit financing
and related matters and received various revised non-binding proposals. Id. Furthermore, the
Debtors and certain Designated Parties engaged in multiple rounds of Court-appointed mediation
overseen by the Honorable (Ret.) Allan L. Gropper (the “Mediator”) regarding issues in
connection with the terms of a proposed restructuring. Id. at 59-60.
Ultimately, the mediation process bore fruit as on November 26, 2021, the Debtors and
each of the Parent GUC Ad Hoc Group (as signatories of the Restructuring Support
18 	Debtors Tr. Ex. 19 (Second Amended Expert Report and Declaration of Brent Herlihy, PJT Partners LP, dated
April 27, 2022) (the “Herlihy Report”).
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Agreement,19 the “Commitment Creditors”), Costa Verde, Delta, Qatar and the Eblen Group (the
“RSA Shareholders”) reached an agreement on a comprehensive restructuring and
recapitalization of the Debtors, memorialized in the RSA, allowing the Debtors to emerge from
Chapter 11 with an appropriate level of capital and debt, as well as access to substantial liquidity.
Id. at 60-61. Subsequently, on February 11, 2022, certain members of the W&C Ad Hoc Group
advised by Moelis & Company and White & Case LLP, holding approximately 27.7% of the
LATAM 2024/2026 Bonds, signed onto the RSA. Id. at 62.
The restructuring contemplated under the RSA is reflected in the Plan and provides
that LATAM will continue to operate as an integrated group (the “Reorganized Debtors”)
under LATAM Parent or any successor thereto, on or after the Effective Date (the
“Reorganized LATAM Parent”). At its core, the economics of the Plan center on a $5.442
billion new equity capital raise in the Chilean capital market. The new money will be raised
through a rights offering (the “ERO Rights Offering”) in an amount of $800 million of new
common stock of Reorganized LATAM Parent (the “ERO New Common Stock”), and
Reorganized LATAM Parent’s issuance of three series of convertible notes (the “New
Convertible Notes Offerings”) consisting of New Convertible Notes Class A (the “Class A
Notes”), New Convertible Notes Class B (the “Class B Notes”), and New Convertible Notes
Class C (the “Class C Notes” and with the Class A Notes and Class B Notes, the “New
Convertible Notes” and, together with the ERO New Common Stock, the “Plan Securities”). See
19 	On November 26, 2021, the Debtors filed the Disclosure Statement with Respect to the Joint Plan of
Reorganization of LATAM Airlines Group S.A., et al., Under Chapter 11 of the Bankruptcy Code [ECF No. 3667]
(as it has been amended, altered, modified, revised or supplemented from time to time, the “Disclosure Statement”).
Annexed thereto as Exhibit E was the first draft of the RSA (the “Original RSA”). On May 13, 2022, the Debtors
filed the Notice of Filing of Fifth Amendment to Restructuring Support Agreement [ECF No. 370]. On May 16,
2022, the Debtors filed the Notice of Filing Additional Executed Local Bondholder Joinder Agreement to
Restructuring Support Agreement [ECF No. 5402]. References to the “RSA” mean the Original RSA as amended
and as additionally joined.
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Plan §§ 6.1, 6.2. Each offering is subject to the rights of Eligible Equity Holders to exercise their
preemptive rights under Chilean law to purchase the Plan Securities. Thus, the offering of each
class of the New Convertible Notes will include a preemptive rights offering to Eligible Equity
Holders. See id.
Key aspects of the Plan are (i) the agreements of the RSA Shareholders to consent to the
Plan Securities offerings, and (ii) the agreements of the Commitment Creditors and a subset of
the RSA Shareholders (the “Backstop Shareholders”) to backstop a total of $5.4 billion of those
offerings. The Commitment Creditors will act as a backstop to the ERO Rights Offering and
Class C Notes Offering and, as necessary, will purchase up to $400 million of the unsubscribed
ERO New Common Stock, and subscribe for and purchase up to $3.269 billion of the
unsubscribed Class C Notes. See Plan §§ 5.5-5.7, 6.1, 6.2. As consideration for those
commitments, the Debtors will pay the Commitment Creditors cash payments (the “Backstop
Fees”) equal to 20% of the $3.669 billion backstop commitments, or approximately $734
million, and will hold back and offer 50% of the Class C Notes to the Commitment Creditors, for
their subscription and purchase under the Plan (the “Direct Allocation”). The Backstop
Shareholders (with the Commitment Creditors, the “Backstop Parties”) will backstop up to $400
million of the unsubscribed ERO New Common Stock, and up to $1.373 billion of the Class B
Notes, subject to the Backstop Shareholders Cap. They will not be paid a fee for those
commitments, but, like the Commitment Creditors under their backstop agreement, they are
entitled to expense reimbursement and indemnification benefits from the Debtors. Those
agreements are reflected in the “Commitment Creditors Backstop Agreement” and the “Backstop
Shareholders Backstop Agreement” (collectively, the “Backstop Agreements”).
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In accordance with the RSA, on January 12, 2022, the Debtors filed a motion seeking
authority and approval of the Court for the Debtors’ entry into and performance under the
Backstop Agreements, and the payment of the Backstop Fees, and reimbursement of expenses in
connection therewith (the “Backstop Motion”).20 The Committee, BancoEstado, the A&P Ad
Hoc Group and Columbus Hill each filed an objection to the Backstop Motion (collectively, the
“Backstop Objections”).21 On February 10 and 11, 2022, the Court conducted a two-day
evidentiary hearing on the Backstop Motion.22 Thereafter, the Court issued its Memorandum
Decision granting the Backstop Motion and overruling the Backstop Objections (the “Backstop
Opinion”).23 The Court issued a corresponding order granting the Backstop Motion (the
“Backstop Order”).24 Certain parties appealed the Backstop Opinion.25 On May 10, 2022, the
Honorable Jesse M. Furman of the Southern District of New York dismissed the appeals. In re
LATAM Airlines Group S.A., No. 22-CV-2556 (JMF), Opinion and Order (S.D.N.Y. May 10,
2022).
20 	Debtors’ Motion for Entry of an Order (I) Authorizing and Approving the Debtors’ (A) Entry Into and
Performance Under Backstop Agreements and (B) Payment of Related Fees and Expenses and Incurrence of Certain
Indemnification Obligations, and (II) Granting Related Relief [ECF No. 4056].
21 	Columbus Hill Capital Management L.P.’s Objection to the Debtors’ Motion [ECF No. 4184]; Objection of the
Official Committee of Unsecured Creditors to the Debtor’s Motion, [ECF No. 4289]; Objection of Banco del Estado
de Chile to the Debtors’ Motion [ECF No. 4293]; Objection of the Ad Hoc Group of Unsecured Claimants [ECF No.
4291].
22 	A&P Ad Hoc Group Tr. Ex. 116 (Feb. 10, 2022 Hr’g Tr.); and A&P Ad Hoc Group Tr. Ex. 118 (Feb. 11, 2022
Hr’g Tr.).
23 	Memorandum Decision Granting the Debtors’ Motion for Entry of an Order Authorizing and Approving the
Debtors’ Entry Into and Performance Under Backstop Agreements and Payment of Related Fees and Expenses and
Incurrence of Certain Indemnification Obligations [ECF No. 4667].
24 	Order (I) Authorizing and Approving the Debtors’ (A) Entry into and Performance under the Backstop
Agreements and (B) Payment of related Fees and Expenses and Incurrence of Certain Indemnification Obligations,
and (II) Granting Related Relief [ECF No. 4732].
25 	Notice of Appeal by Columbus Hill [ECF No. 4924]; Notice of Appeal by A&P Ad Hoc Group [ECF No.
4773]; Notice of Appeal by BancoEstado [ECF No. 4763]; and Notice of Appeal by Committee [ECF No. 4751].
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On November 26, 2021, the Debtors filed the Plan and the Disclosure Statement. On
March 21, 2022, the Bankruptcy Court entered the order approving the Disclosure Statement, as
supplemented (the “Disclosure Statement Order”),26 and on March 25, 2022, the Debtors filed
solicitation versions of the Plan [ECF No. 4776] and Disclosure Statement [ECF No. 4777].
Thereafter, the Debtors caused Kroll Restructuring Administration (formerly known as Prime
Clerk LLC) (the “Solicitation Agent”) to commence solicitation of votes on the Plan in
compliance with the Disclosure Statement Order. After the distribution of Solicitation Packages
and Non-Voting Status Notice Packages (each as defined in the Disclosure Statement Order),
voting commenced. Consistent with the Disclosure Statement Order, on April 12, 2022, the
Debtors filed the plan supplement [ECF No. 5014] (the “First Plan Supplement”), and on May 4,
2022, the Debtors filed the second plan supplement [ECF No. 5243] (the “Second Plan
Supplement,” together with the First Plan Supplement, the “Plan Supplement”). On May 4,
2022, the Bankruptcy Court entered a supplemental order [ECF No. 5221] approving the
solicitation of the votes to accept or reject an amended Plan by Holders of RCF Claims in Class
1, including related solicitation materials and procedures, solely as it relates to the treatment of
RCF Claims.
The Plan classifies Holders of Claims and Equity Interests throughout eleven classes.
Classes 1, 5 and 7 are classified as impaired. See Plan §§ 2.2, 3.2. The Voting Deadline for all
Holders of Claims entitled to vote on the Plan, except Holders of Local Bonds and RCF Claims,
was May 2, 2022, at 4:00 p.m., prevailing Eastern Time. The Voting Deadline for the Local
26 	Order signed on 3/21/2022 Approving (I) the Adequacy of Information in the Disclosure Statement, (II)
Solicitation and Voting Procedures, (III) Forms of Ballots, Notices and Notice Procedures in Connection Therewith,
and (IV) Certain Dates With Respect Thereto [ECF No. 4728].
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Bonds was May 4, 2022, 27 and the RCF Voting Deadline was May 10, 2022 at 4:00 p.m. On
May 6, 2022, the Solicitation Agent filed the Voting Report,28 and on May 11, 2022, it filed the
Supplemental Voting Report.29 As set forth in those reports, the Plan has been overwhelmingly
accepted by Classes 1, 5 and 7.
In connection with the Plan and related RSA filed on May 13, 2022, holders of
approximately $490.5 million of Local Bonds now support the confirmation of the Plan, in
addition to the accepting Class 5 votes. See Notice of Fifth Amendment to Restructuring
Support Agreement, Ex. B (Executed RSA Joinders) [ECF No. 5370]. Beginning in April 2022,
the Debtors, the Commitment Creditors and BancoEstado began mediation in an effort to resolve
BancoEstado’s objections to the Plan and related disputes. See Herlihy Decl. ¶ 5.30 In May
2022, the Backstop Shareholders and the Committee joined the negotiations. Id. On May 11,
2022, the Debtors announced that they had reached an agreement that would resolve all pending
disputes with BancoEstado and the Committee, including BancoEstado’s request for substantive
consolidation of certain of the Debtors, with the support of the Commitment Creditors and the
Backstop Shareholders. Id. ¶ 6. The Plan reflects these agreements and settlements. As set out in
the Plan, the results of these negotiations include an increase in the overall recoveries to Allowed
27 	Notice Regarding Extension of Local Bond Trustee’s Plan Voting Deadline [ECF No. 5058].
28 	Preliminary Declaration of Alex Orchowski of Kroll Restructuring Administration LLC Regarding the
Solicitation of Votes and Tabulation of Ballots Cast on the Joint Plan of Reorganization of LATAM Airlines Group,
S.A. et al. Under Chapter 11 of the Bankruptcy Code [ECF No. 5260].
29 	Supplemental Declaration of Alex Orchowski of Kroll Restructuring Administration LLC Regarding the
Solicitation of Votes and Tabulation of Ballots Cast on the Joint Plan of Reorganization of LATAM Airlines Group,
S.A. et al. Under Chapter 11 of the Bankruptcy Code [ECF No. 5285].
30 	Debtors Tr. Ex. 31 (Declaration of Brent Herlihy, PJT Partners LP, in Further Support of the Debtors’ Proposed
Plan of Reorganization dated May 12, 2022) (the “Herlihy Decl.”).
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General Unsecured Class 5 Claims.31 Id. ¶ 7. The parties’ agreement also resulted in certain
modifications to the Backstop Agreements, including to allow certain Holders of Local Bonds to
become parties to the Commitment Creditors Backstop Agreement, and a revised RSA, including
executed joinders for Holders of Local Bonds representing more than two-thirds in amount of the
outstanding Local Bonds. Id. ¶ 10; see also Notice of Fifth Amendment to Restructuring
Support Agreement, Ex. B (Executed RSA Joinders) [ECF No. 5370].
The Plan Objections
Below, the Court briefly summarizes the Plan Objections.
The TLA Claimholders
The TLA Claimholders are asserting unsecured claims against TAM Linhas Aereas S.A.
(“TLA”). Under the Plan, their claims are classified in Class 6. The Plan calls for Holders of
Allowed Class 6 Claims to be paid in full (i.e., principal and pre-petition interest, as applicable).
See Plan § 3.2(f). It provides that Class 6 is unimpaired, and that Holders of Allowed Class 6
Claims do not vote on the Plan. Id. The TLA Claimholders assert that TLA is solvent and, as
such, that they are entitled to be paid post-petition interest (“PPI”) on account of their Class 6
claims. See TLA Claimholders Obj. ¶ 25. They maintain that because the Plan fails to provide for
the payment of PPI on account of their claims, under section 1124(1) of the Bankruptcy Code,
the Class 6 claims are impaired, and the TLA Claimholders are entitled to vote on the Plan. See
Id. ¶¶ 23-26. They object to confirmation on the grounds that the Plan violates section 1124(1)
and thus, fails to comply with section 1129(a)(1) of the Bankruptcy Code. They also contend that
31 	“Allowed General Unsecured Class 5 Claims,” as used herein, means the “Allowed General Unsecured
Claim[s] against LATAM Parent” as stated in the Plan. See, e.g., Plan § 3.2(e)(ii). “Holders of Allowed General
Unsecured Class 5 Claims,” as used herein, means the “Holder[s] of [] Allowed General Unsecured Claim[s]
against LATAM Parent” as stated in the Plan. See id.
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the Plan fails to comply with section 1129(a)(8) of the Bankruptcy Code because Class 6 is
impaired and did not vote to accept the Plan. See id.
Columbus Hill
Columbus Hill contends that the Plan violates Chilean law and as such, the Court cannot
confirm the Plan because the Debtors filed it in bad faith in violation of section 1129(a)(3) of the
Bankruptcy Code, and because the Plan is not feasible as required under section 1129(a)(11) of
the Bankruptcy Code. See Columbus Hill Obj. ¶¶ 41-43.
The A&P Ad Hoc Committee
The A&P Ad Hoc Group objects to confirmation on the grounds that
(i) the Plan does not comply with section 1129(a)(1) of the Bankruptcy Code
because it violates section 1123(a)(4) of the Bankruptcy Code, since the Plan
provides some, but not all, of the Holders of Allowed General Unsecured Class 5
Claims the ability to receive their pro rata allocation of the Direct Allocation
Amount and a share of the Backstop Fees on account of the new ERO Common
Stock;
(ii) the Plan calls for the payment of excessive and unreasonable Backstop Fees to
the Commitment Creditors in violation of section 1129(a)(4);
(iii) the Corporate Incentive Plan established under the Plan violates section
503(c) of the Bankruptcy Code;
(iv) the Plan violates section 1129(a)(3) of the Bankruptcy Code because it
provides economics to the Commitment Creditors that amount to impermissible
“vote buying”;
(v) the Non-Debtor Releases and Exculpation Clause in the Plan violate the
Bankruptcy Code; and
(vi) the Plan may violate the absolute priory rule under section 1129(b)(2) of the
Bankruptcy Code.
See A&P Ad Hoc Group Obj. ¶¶ 20, 22-23, 27, 35, 41-42, 44, 55, 59.
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The U.S. Trustee
The U.S. Trustee contends that the Plan does not satisfy sections 1129(a)(1) and
1129(a)(4) of the Bankruptcy Code because the Corporate Incentive Plan established under the
Plan violates section 503(c) of the Bankruptcy Code. He further asserts that the Non-Debtor
Releases and Injunction in the Plan violate the Bankruptcy Code and should be stricken from the
Plan and the Exculpation Provision should be modified. See U.S. Trustee Obj. at 1, 6-14, 18.
In his supplemental objection, the U.S. Trustee contends that the Debtors solicited votes
to accept the Plan from certain Holders of Allowed General Unsecured Class 5 Claims (the
“Class 5 Claim Allowance Creditors”) in violation of section 1125(b) of the Bankruptcy Code.
He contends that the Plan is not confirmable because the Debtors cannot demonstrate that their
actions comport with section 1129(a)(2) of the Bankruptcy Code. See U.S. Trustee Suppl. Obj. at
14-19.
* 	* 	* 	*
To summarize, the Plan Objections focus on the Debtors’ alleged failure to demonstrate
that the Plan satisfies section 1129(a)(1) (plan compliance with applicable provisions of title
11), section 1129(a)(2) (plan proponent’s compliance with applicable provisions of title 11),
section 1129(a)(3) (good faith requirement), section 1129(a)(4) (payments for services or costs
under plan must be reasonable), section 1129(a)(8) (class acceptance of the plan), and section
1129(a)(11) (feasibility). The Court will address those matters below in its discussion of the Plan
Objections. The Court finds that on the record of the Confirmation Hearing, the Debtors have
demonstrated that the Plan complies with all other requirements of section 1129 of the
Bankruptcy Code, as set forth in the Confirmation Order. The Court will not further discuss
them.
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Discussion
The TLA Claimholders Objection
Overview
The TLA Claimholders is an ad hoc group of creditors asserting unsecured claims
aggregating approximately $300 million (the “TLA GUCs”) against TLA. TLA Claimholders
Obj. ¶ 20. The claims are evidenced by certain debt instruments that are governed by Brazilian
law. 32 The Debt Instruments each provide for the payment of: (i) interest at specified pre-default
rates, (ii) post-default rates of interest of 1% per month, (iii) a 2% post-default late payment
charge, and (iv) certain fees and expenses, including attorneys’ fees. Id. ¶ 9. It is undisputed that
a default occurred under each of the Debt Instruments either on the Initial Petition Date, in the
case of the BDB CCB and Convenio, or on the Subsequent Petition Date, in the case of the
Bradesco CCBs. Id. ¶ 10. The Plan classifies TLA GUCs, and all other General Unsecured
Claims against each Debtor other than LATAM Parent, Piquero Leasing Limited and LATAM
Finance, in Class 6. Plan § 3.2(f).
The Plan provides that Holders of Allowed Class 6 Claims will receive:
(x) Cash equal to the amount of such Allowed Class 6 Claim;
32 	The TLA GUCs consist of:
(i) that certain Cédula de Crédito Bancário, dated April 22, 2020 and numbered 313.202.489 (as
reflected in Proof of Claim Nos. 3526 and 3703) (the “BDB CCB”);
(ii) that certain Convênio para Antecipação de Recebiveis a Fornecedores de Produtos Ou
Serviços Mediante Cessão de Direitos Creditórios, dated October 2, 2018 and numbered
313.202.444 (as reflected in Proof of Claim No. 3731) (the “Convenio”);
(iii) that certain Cédula de Crédito Bancário Empréstimo, dated April 29, 2020 and numbered
351/3219142 (as reflected in Proof of Claim No. 3532); and
(iv) that certain Cédula de Crédito Bancário Empréstimo, dated May 7, 2020 and numbered
237/2372/0705 (as reflected in Proof of Claim No. 3532).
Items (iii) and (iv), together, are referred to herein as the “Bradesco CCBs,” and the Bradesco CCBs, together with
the BDB CCB and Convenio, are referred to as the “Debt Instruments.” TLA Claimholders Obj. ¶ 7.
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(y) such other less favorable treatment as to which the Debtors and the Holder of
such Allowed Class 6 Claim shall have agreed upon in writing; or
(z) such other treatment such that the applicable Allowed Class 6 Claim will be
rendered Unimpaired pursuant to section 1124 of the Bankruptcy Code.
Id. The amount of such Allowed Class 6 Claims excludes PPI.
The TLA Claimholders contend that TLA is solvent. They maintain that under the
Bankruptcy Code to leave a class of unsecured creditors unimpaired under a plan of a solvent
debtor, the plan must provide for the payment of principal in full, plus PPI, to those creditors.
See TLA Claimholders Obj. ¶¶ 1-2. They claim that they are entitled to at least $150 million in
PPI on their TLA GUCs. Debtors Omnibus Reply ¶ 56 n.53. Although the Plan does not call for
TLA GUCs to be paid PPI, it states that their claims are unimpaired and denies them the right to
vote on the Plan. Plan § 3.2(d)(iii). The TLA Claimholders object to confirmation. They contend
that the Court cannot confirm the Plan because the Debtors cannot satisfy their burden of
demonstrating that the Plan complies with sections 1124(1), 1129(a)(1), and 1129(a)(8) of the
Bankruptcy Code. TLA Claimholders Obj. ¶ 26.
The Court concludes that the TLA GUCs are not impaired under the Plan. As discussed
below, to hold otherwise would ignore the ban on “unmatured interest” (i.e., PPI) under section
502(b)(2) of the Bankruptcy Code and caselaw reasoning that section 1124(1) speaks to
impairment by a bankruptcy plan, not limitations set forth by the Bankruptcy Code. Below, the
Court also assesses whether the TLA Claimholders are entitled to PPI notwithstanding that they
are unimpaired. It does so because courts have held that unimpaired creditors of solvent debtors
may nevertheless be entitled to PPI under various provisions of the Bankruptcy Code, namely
sections 1124(1) and 1129(a)(7) as relevant here. The Court considers whether TLA is solvent
under section 101(32) of the Bankruptcy Code as a threshold issue to this analysis. As discussed
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below, the Court finds that TLA is insolvent because: (a) the TLA Claimholders have failed to
satisfy their burden to demonstrate that the sum of TLA’s debts exceeds the sum of its property
at a fair valuation, see 11 U.S.C. § 101(32), and (b) in any event, the Debtors have set forth
affirmative evidence demonstrating that TLA is insolvent under section 101(32). Finally, the
Court analyzes whether the TLA Claimholders would be entitled to PPI, and at what rate of
interest, if the TLA Claimholders had in fact demonstrated TLA is solvent. In doing so, the Court
finds that the solvent debtor exception to the ban on unmatured interest survived the enactment
of the Bankruptcy Code through section 1129(a)(7) (as relevant here), not section 1124(1) and,
thus, would demand the Debtors pay PPI on the TLA GUCs at the federal judgment rate (i.e., the
“legal rate” under section 726(a)(5) of the Bankruptcy Code), not at the rate called for in the
Debt Instruments.
Accordingly, based on the above, and as set forth below, the Court overrules the TLA
Claimholders Objection and finds that the Debtors have satisfied sections 1129(a)(1) and
1129(a)(8) of the Bankruptcy Code with respect to the Plan’s treatment of the TLA GUCs.
Whether the TLA GUCs Are Impaired Under the Plan
“Confirmation of a plan of reorganization is the statutory goal of every chapter 11 case.
Section 1129 of the Bankruptcy Code provides the requirements for such confirmation,
containing Congress’ minimum requirements for allowing an entity to discharge its unpaid debts
and continue its operations.” Bank of Am. Nat'l Trust and Sav. Ass'n v. 203 N. LaSalle St.
P’ship, 526 U.S. 434, 465, n.4 (1999) (Stevens, J., dissenting) (quotation omitted). As the Plan
proponents, the Debtors bear the burden of proving by a preponderance of the evidence that each
of the confirmation requirements set forth in section 1129(a) of the Bankruptcy Code have been
satisfied. See In re Breitburn Energy Partners LP, 582 B.R. 321, 349 (Bankr. S.D.N.Y. 2018)
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(“The proponent of the confirmation of a plan must prove by a preponderance of the evidence
that it satisfies the relevant requirements of 11 U.S.C. § 1129(a), and if the plan is not fully
consensual, 11 U.S.C. § 1129(b).”); In re Quigley Co., Inc., 437 B.R. 102, 125 (Bankr. S.D.N.Y.
2010) (“The proponent of confirmation bears the burden of proof by a preponderance of the
evidence.”).
“The Bankruptcy Code creates a presumption of impairment ‘so as to enable a creditor to
vote on acceptance of the plan.’ Under 11 U.S.C. § 1124(1), the presumption of impairment is
overcome only if the plan ‘leaves unaltered the [creditor’s] legal, equitable, and contractual
rights.’ The burden is placed on the debtor to demonstrate the plan leaves the creditor’s rights
unaltered.” Solow v. PPI Enters. (U.S.), Inc. (In re PPI Enters. (U.S.), Inc.), 324 F.3d 197, 203
(3d Cir. 2003) (internal citations omitted). The TLA Claimholders contend that the Debtors have
failed to meet that burden because the Plan purports to leave the TLA GUCs unimpaired under
section 1124(1) of the Bankruptcy Code without satisfying the standards set forth therein. For
that reason, they say that the Court cannot confirm the Plan because the Debtors cannot satisfy
their burden under section 1129(a)(1) of the Bankruptcy Code to prove that the Plan complies
with all applicable provisions of the Bankruptcy Code, or their burden under section 1129(a)(8)
to show that all classes either accepted the Plan or are unimpaired under the Plan. See TLA
Claimholders Obj. ¶¶ 22-24.
Section 1124(1) of the Bankruptcy Code states that a class of claims is impaired under a
plan unless, with respect to each claim, the plan “leaves unaltered the legal, equitable, and
contractual rights to which such claim . . . entitles the holder of such claim . . . .” 11 U.S.C. §
1124(1). That section says nothing about the payment of interest. However, section 502(b)(2) of
the Bankruptcy Code expressly disallows claims of unsecured creditors for “unmatured interest”
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(i.e., PPI). 11 U.S.C. § 502(b)(2). It is settled that a creditor’s “legal, equitable, and contractual
rights” under section 1124(1) are subject to “the Bankruptcy Code’s own limitations on claim
allowance, including limitations on the allowance of postpetition interest.” In re 53 Stanhope
LLC, 625 B.R. 573, 579 (Bankr. S.D.N.Y 2021). See also Keystone Gas Gathering L.L.C. v. Ad
Hoc Comm. (In re Ultra Petroleum Corp.), 943 F.3d 758, 763-65 (5th Cir. 2019) (“Ultra
Petroleum I”); In re PPI Enters. (US) Inc., 324 F.3d at 201-02. Accordingly, “[w]here a plan
refuses to pay funds disallowed by the Code, the Code—not the Plan—is doing the impairing.”
Ultra Petroleum I, 943 F.3d at 765; see also In re PPI Enters. (U.S.), Inc., 324 F.3d at 205
(where “the Bankruptcy Code, not the Plan, is the only source of limitation” on a creditor’s
rights, the creditor’s claim is not impaired). Because the Plan provides for payment of the TLA
GUCs in full (i.e., principal and pre-petition interest) and the Bankruptcy Code itself disallows
payment of PPI under section 502(b)(2), the claims are not impaired within the meaning of
section 1124(1) the Bankruptcy Code. Ultra Petroleum I, 943 F.3d at 763; see also Wells Fargo
Bank, N.A. v. The Hertz Corp (In re The Hertz Corp.), No. 20-11218, 2021 WL 6068390, at *11
(Bankr. D. Del. Dec. 22, 2021) (“Hertz”) (“[T]he Court concludes that any modification of the
Noteholders’ claim to unmatured interest . . . is an impairment of the Noteholders’ contract
claims by operation of section 502(b)(2) of the Bankruptcy Code, not the Debtors’ Plan.
Consequently, the Noteholders’ claims are not impaired within the meaning of section
1124(1).”).
Whether Solvent Debtor Exception Applies and the TLA Claimholders are Entitled to PPI
Still, the TLA Claimholders assert that the “solvent debtor exception” applies in this case
and that they have an equitable right to be paid PPI on the TLA GUCs. TLA Claimholders Obj.
¶¶ 29-30. They say that is so because TLA is solvent and, thus, should be compelled to (and has
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the means) to pay them PPI. Below, the Court examines whether TLA is solvent, whether the
solvent debtor exception survived the enactment of the Bankruptcy Code, and, if so, whether
(and at what rate) the TLA Claimholders are entitled to PPI on the TLA GUCs.
The parties disagree whether the TLA Claimholders or the Debtors have the burden of
proof on the issue of TLA’s solvency. The former contend that the burden is on the Debtors to
prove TLA is insolvent because the Debtors have the burden of proving that the TLA GUCs are
unimpaired under the Plan—and that they can only do so by demonstrating that it is insolvent.
See id. ¶¶ 23, 32. They say that is so because “[t]he Bankruptcy Code creates a presumption of
impairment ‘so as to enable a creditor to vote on acceptance of the plan.’ Under 11 U.S.C. §
1124(1), the presumption of impairment is overcome only if the plan ‘leaves unaltered the
[creditor’s] legal, equitable, and contractual rights.’ The burden is placed on the debtor to
demonstrate the plan leaves the creditor's rights unaltered.” In re PPI Enters. (U.S.), Inc., 324
F.3d at 203 (internal citations omitted). The Debtors contend that the TLA Claimholders have the
burden to show TLA is solvent because plan objectors always bear the burden to substantiate
their objections. Debtors Omnibus Reply ¶ 110 (citing In re W.R. Grace & Co., 475 B.R. 34, 162
(Bankr. D. Del. 2012)). The Debtors also contend that the TLA Claimholders’ position is
immaterial because “it is clear that the TLA [GUCs] are unimpaired under the Plan,” meaning
the whole question at issue concerns only solvency. See id. ¶ 110 n.55.
The Court agrees with the Debtors. As demonstrated above, the Debtors have met their
burden to demonstrate that the TLA GUCs are not impaired under the Plan. See, e.g., Ultra
Petroleum I, 943 F.3d at 763; Hertz, 2021 WL 6068390, at *11. That burden does not extend to
require the Debtors to also prove if (and how) the common law solvent debtor exception interacts
with or overrides section 502(b)(2), which, according to the TLA Claimholders, would require
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the Debtors to prove TLA’s insolvency in order to avoid paying interest under the solvent debtor
exception. The TLA Claimholders have cited no caselaw for that proposition and the Court is
aware of none. Finding otherwise would be illogical as it would, in effect, mean that a debtor
could not obtain the benefit of section 502(b) unless and until it set forth affirmative evidence
that it was insolvent (assuming the solvent debtor exception is applicable under the Bankruptcy
Code). See May 20, 2022 Hr’g Tr. – Public Session, 194:2-10. As such, the Court finds that the
TLA Claimholders bear the burden of proof to demonstrate TLA is solvent, as it is the lynchpin
of their objection to the Plan. See In re W.R. Grace & Co., 475 B.R. at 162 (upholding
bankruptcy court finding that creditors arguing for post-petition default interest “did not satisfy
their burden and that there was insufficient evidence to render [the debtor] solvent.”).
Whether TLA is Solvent
Section 101(32) of the Bankruptcy Code defines the term “insolvent” as the “financial
condition such that the sum of [an] entity’s debts is greater than all of such entity’s property, at a
fair valuation . . . .” 11 U.S.C. § 101(32)(A). The Bankruptcy Code does not provide a definition
of “fair valuation.” The parties each rely on an expert to opine on whether TLA is insolvent. The
Debtors offer the testimony of Mr. Brock Edgar. He is a is a Senior Managing Director at FTI
Consulting, Inc., the financial advisors to the Debtors.33 The TLA Claimholders offer the
testimony of Mr. Santiago Dellepiane. He is a Managing Director with Berkeley Research
Group, LLC and Co-Chair of its Economics & Damages practice.34 Mr. Edgar contends that
33 	Debtors Tr. Ex. 1 (Declaration of Brock Edgar in Support of the Debtors, dated April 29, 2022) (the “Edgar
Decl.”) ¶ 1.
34 	TLA Claimholders Tr. Ex. 121(Amended Declaration of Santiago Dellepiane, dated May 15, 2022) (the “Am.
Dellepiane Decl.”) ¶ 3.
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under the standards set forth in section 101(32) of the Bankruptcy Code, TLA is insolvent; Mr.
Dellepiane contends that TLA is solvent.
While the TLA GUCs are classified in Class 6 under the Plan, the Plan’s treatment of
Class 4 claims is indirectly relevant to Mr. Dellepiane’s analysis of TLA’s solvency. Class 4 of
the Plan consists of unsecured claims against LATAM Finance and LATAM Parent by the
holders of the LATAM 2024/2026 Bonds. See Plan §§ 3.2(d). The Plan’s treatment of the Class
4 LATAM 2024/2026 Bond Claims comprises and depends on a combined recovery on account
of allowed claims against both LATAM Parent and LATAM Finance. See id. § 3.2(d); see also
Am. Herlihy Rebuttal Report at 7.35 The Plan calls for Class 4 creditors to be paid in full, without
PPI and without any new money investment rights. Class 4 is unimpaired and presumed to accept
the Plan. See Plan § 3.2(d).36 The Plan’s classification and treatment of the Class 4 claims
reflects an agreement and compromise among the Debtors and the parties to the RSA (the “Class
4 Compromise”) and is set forth in the RSA. See Herlihy Report at 60-63, 69.
In the Plan, the Debtors seek approval of the Class 4 Compromise—and all the integrated
compromises and settlements reflected in the Plan—pursuant to Bankruptcy Rule 9019. See Plan
§ 5.2. In support of that request, the Debtors submitted the expert testimony of Mr. Brent
Herlihy. He is a Managing Director in the Restructuring and Special Situations Group at PJT
Partners LP (“PJT”), the investment banker that the Debtors have retained in these Chapter 11
Cases. Through Mr. Herlihy’s testimony, the Debtors seek to demonstrate that there is sufficient
distributable value at LATAM Finance and LATAM Parent to provide a full recovery of the
35 	Debtors Tr. Ex. 20 (Amended Rebuttal Report of Brent Herlihy, PJT Partners LP, dated April 27, 2022) (“Am.
Herlihy Rebuttal Report”).
36 	Nevertheless, the Debtors solicited the votes of Holders of Allowed Class 4 Claims in the manner and to the
extent provided in the Disclosure Statement Order. Plan § 3.2(d)(iii) n.14.
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LATAM 2024/2026 Bonds at a $14 billion valuation (i.e., that at a $14 billion valuation, the
LATAM 2024/2026 Bonds were entitled to 100% recovery of principal and pre-petition interest).
See Herlihy Report at 64-69. In his opinion, the Class 4 Compromise is within the range of
reasonable outcomes based on the allocation methodology described below. Initially, the
Committee and BancoEstado objected to the Class 4 Compromise. They have since withdrawn
their objections. The Court finds that the Debtors have demonstrated that the Class 4
Compromise satisfies the well-settled standards governing the approval of settlement
agreements. See In re W.T. Grant Co., 699 F.2d 599, 608 (2d Cir. 1983) (bankruptcy courts
assessing settlement agreements must “see whether the settlement falls below the lowest point in
the range of reasonableness”); Protective Comm. for Indep. Stockholders of TMT Trailer Ferry,
Inc. v. Anderson, 390 U.S. 414, 424-25 (1968) (in evaluating a settlement under Bankruptcy Rule
9019, a court must determine that it is fair, equitable, and in the best interests of the estate); In re
Hibbard Brown & Co., Inc., 217 B.R. 41, 46 (Bankr. S.D.N.Y. 1998) (a court may exercise its
discretion to approve or deny a settlement “in light of the general public policy favoring
settlements”).
Mr. Herlihy’s methodology in evaluating the merits of the Class 4 Compromise is
relevant to the TLA Claimholders Objection. In support of the objection, Mr. Dellepiane utilizes
two methodologies to determine the value of TLA: (1) a discounted cash flow methodology (the
“DCF Methodology”); and (2) a distributable value waterfall, which allocates value to TLA
based on Mr. Herlihy’s total enterprise value of the Debtors as an integrated unit (the
“Distributable Value Waterfall”). See Am. Dellepiane Decl. ¶¶ 19-37. From these two valuation
figures ($5.8 to $7.0 billion (DCF Methodology) and $3.446 billion (Distributable Value
Waterfall)), Mr. Dellepiane subtracts a claims value of $1.08 or $1.96 billion to opine that the
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fair value of TLA’s property exceeds its liabilities and, thus, that TLA is solvent. See id. ¶¶ 36-
37. The Court briefly discusses the methodology Mr. Herlihy employed in evaluating the merits
of the Class 4 Compromise.
In seeking approval of the Class 4 Compromise, the Debtors sought to demonstrate that
there is sufficient distributable value at LATAM Finance and LATAM Parent to provide a full
recovery of the LATAM 2024/2026 Bonds at a $14 billion valuation of the Debtors as a whole.
Mr. Herlihy needed to assign value to each Debtor in order to isolate the value attributable to
LATAM Finance and LATAM Parent, as issuer and guarantor of the LATAM 2024/2026 Bonds,
respectively, to determine if they had sufficient capital to pay the holders of LATAM 2024/2026
Bond Claims 100% of their principal and pre-petition interest pursuant to the Class 4 Treatment
under the Plan. See Herlihy Report at 64-69. To do so, he undertook the following process:
Mr. Herlihy began with a Total Enterprise Value of $14 billion (“TEV”), which is
the middle point of the various estimates he assigns to the consolidated value of
the Debtors. See id. at 66-68. He adopted this figure from Exhibit D to the
Disclosure Statement. Id. at 66 (“I evaluated recoveries across the full range of
enterprise values ($13 - $15bn) filed as Exhibit D to the Disclosure Statement”).
Next, Mr. Herlihy estimated a “Total Distributable Value” for the consolidated
group of Debtors. The Total Distributable Value is the amount of funds available
for creditors after performing the following calculations on the TEV: (i)
subtracting each Debtor’s share of the DIP; (ii) adding excess cash; and (iii)
subtracting net operating losses. See id. at 65. Mr. Herlihy calculated the Debtors’
Total Distributable Value to be $10.995 billion. See Debtors Tr. Ex. 14 (the
“Herlihy Waterfall Output”) at 002 (($14bn TEV) + ($289m excess cash) –
($295m net operating losses) – ($3bn DIP Tranches A, B, and C)).
Mr. Herlihy then calculated the percentage of the Debtors’ Total Distributable
Value (i.e., $10.995 billion) that should be allocated to each Debtor. Although his
focus was on LATAM Parent and LATAM Finance, in doing this analysis, he
determined that TLA should be allocated 29% (or $3.213 billion) of the Total
Distributable Value. See id. at 007. He arrived at that figure by blending three
different allocation methodologies. See Herlihy Report at 64. According to Mr.
Herlihy, $3.213 billion is TLA’s operating allocation of the consolidated Debtors’
Total Distributable Value. See Herlihy Waterfall Output at 002, 007.
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Applying the adjustments called for in the Distributable Value Waterfall, see
Herlihy Report at 65, Mr. Herlihy calculates the distributable value of TLA to be
$3.446 billion. See Herlihy Waterfall Output at 033. According to Mr. Herlihy,
this is the value that TLA holds to settle any claims that sit at TLA—i.e., the
starting point for allocating that distributable value through a waterfall for
creditors (the “TLA Creditor Waterfall”).37
Mr. Herlihy then applied the TLA Creditor Waterfall.38 The TLA Creditor
Waterfall leaves an “Equity Value” of $2.366 billion after satisfying all claims
identified in the Herlihy Waterfall Output. See id. at 033-038. The claims
identified as sitting at TLA in the Herlihy Waterfall Output total $1.080 billion.
See id.
Distributable Value Waterfall
Mr. Dellepiane applies the Distributable Value Waterfall to allocate a portion of the
Debtors’ consolidated enterprise value to TLA individually. In doing so, he borrows from the
calculations behind Mr. Herlihy’s conclusion that the Class 4 Compromise passes muster under
Rule 9019. Mr. Dellepiane—purporting simply to adopt Mr. Herlihy’s methodology—contends
that TLA’s equity value is $2.336 billion (($3.446 bn) – ($1.080 bn)). Am. Dellepiane Decl. ¶
36. He concludes that this figure demonstrates that TLA is solvent because it is the value
remaining at TLA “even after satisfying 100% of all identified claims.” Id. Mr. Dellepiane
adopts $1.080 billion as the applicable claims value because, he contends, it is “the most recent
record of claim amounts against TLA that have been produced by the Debtors[.]” Id. ¶ 30.39 He
37 	TLA Claimholders Tr. Ex. 131 (Deposition Transcript of Brent Herlihy) at 466:19-467:9.
38 	Mr. Herlihy performed these steps for each individual Debtor, again, as part of his assessment of the Plan’s
treatment of the LATAM 2024/2026 Bond Claims in Class 4. See generally Herlihy Waterfall Output. The Court
focuses here on his calculations for TLA only because they are relevant to Mr. Dellepiane’s analysis, which is based,
in part, on Mr. Herlihy’s calculations.
39 	Mr. Dellepiane, however, does recognize that other documents from the Debtors reflect higher calculations of
claims against TLA. See Am. Dellepiane Decl. ¶ 29 (“Such documents that I have reviewed include (1) FTI General
Claims Breakdown, which indicates that there are approximately $1.15 billion of claims attributed to TLA, (2) the
TLA Schedules of Assets and Liabilities as of July 6, 2020, which indicates that there were approximately $1.332
billion of claims attributed to TLA as of TLA’s petition date, and (3) the Cleansing Blowout Materials as of
November 26, 2021 which indicate a range of claims against TLA between $1.720 billion and $1.938 billion.”). He
does not offer why he rejects these figures and adopts a claims value of $1.080 billion, other than noting this is the
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estimates the total claims against TLA at $1.96 billion, which he contends accounts for TLA’s
share of 29% of the $3 billion DIP taken out by the Debtors. Id. ¶ 31. Mr. Dellepiane, however,
does not use $1.96 billon as the proper liability figure—presumably because Mr. Herlihy did not
either. As set forth below, however, he utilizes this liability figure in the DCF Methodology for
purposes of netting TLA’s assets and liabilities.
DCF Methodology
Mr. Dellepiane’s DCF Methodology calculates TLA’s free cash flow and then applies a
discount rate to find the present value of those cash flows. Id. ¶ 21. Mr. Dellepiane contends that
the DCF is the “most appropriate and most reasonable” method to determine the fair value of
TLA’s assets. Id. The DCF Methodology borrows from Mr. Herlihy’s discounted cash flow. See
Herlihy Report at 43 (estimating the Debtors’ total enterprise value at $13.3 to $15.9 billion).
Mr. Dellepiane starts with projected monthly financial information from the Debtors’ five-year
business plan, which runs through 2026 (the “Business Plan”). Am. Dellepiane Decl. ¶ 21. From
that, he estimates TLA’s free cash flows by considering its total revenues, total expenses, and
Earnings Before Interest, Taxes, Depreciation, and Amortization (“EBITDA”)—all of which is
provided in the Debtors’ projections. Id. ¶ 22. Next, Mr. Dellepiane estimated working capital
variations, income tax, and capital expenditures in order to determine TLA’s cash flows. Id.
This process only measured TLA’s estimated cash flow through December 31, 2026—the
projection period in the Debtors’ Business Plan. To estimate TLA’s cash flows after this, Mr.
Dellepiane attempted to account for future growth of TLA’s cash flows. He settles on two
“most recent” claims estimate, as well as the estimate utilized by Mr. Herlihy in the Distributable Value Waterfall.
See id. ¶ 30; see also Herlihy Waterfall Output at 033-038.
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options to do so: (1) a Perpetual Growth Model (2.25% growth rate)40 ; and (2) an Exit Multiple
Model (6.0x EV/EBITDAR multiple). Id. ¶ 23.
Because this process estimates the value of TLA’s cash flows in the future, Mr.
Dellepiane acknowledges that a discount rate must be applied to value the cash flows today. To
do so, he utilizes two weighted average cost of capital (“WACC”) estimates: (1) 9.18%
(borrowed from Mr. Herlihy, see Herlihy Report at 43, 48); and (2) 8.09% (which Mr.
Dellepiane opines is the appropriate rate for a Brazilian airline company). Am. Dellepiane Decl.
¶ 24.
Applying the two WACC estimates across the two growth factors (the Perpetual Growth
Model and the Exit Multiple Model), Mr. Dellepiane calculates the fair value of TLA’s assets
(before subtracting the fair value of its liabilities) as follows:
Perpetual Growth Model
8.09 % WACC: $7.0 billion
9.18% WACC: $5.8 billion
Exit Multiple Model
8.09% WACC: $6.4 billion
9.18% WACC: $6.2 billion
Id. ¶ 27. As such, Mr. Dellepiane estimates the present value of TLA’s future cash flows to be
worth between $5.8 and $7.0 billion. Id.
To determine the total value of TLA’s liabilities, Mr. Dellepiane borrows from Mr.
Herlihy’s calculation of the share of the Debtors’ claims attributable to TLA as part of the
Distributable Value Waterfall. As set forth above, these claims total $1.080 billion. See Herlihy
40 	This is the same factor utilized by Mr. Herlihy. See Herlihy Report at 44 (identified as a “key assumption”).
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Waterfall Output at 033-038. Mr. Dellepiane adds $877 million on top of this figure to account
for TLA’s 29% share of the Debtors’ DIP, as described above. As such, for purposes of the DCF
Methodology, he contends that the proper claims (i.e., liability) amount is $1.96 million. Am.
Dellepiane Decl. ¶¶ 31, 37.
Mr. Dellepiane contends that TLA is solvent because—even utilizing his lowest
estimated value of TLA, $5.8 billion—subtracting the claims figure leaves residual equity value
of at least $3.8 billion (($5.8 billion) – ($1.96 billion)). Id. ¶ 37.
Mr. Dellepiane’s Methodologies Do Not Measure TLA’s Solvency
The Court accords little to no weight to Mr. Dellepiane’s methodologies—both the
Distributable Value Waterfall and the DCF Methodology. Both suffer from unrebutted
infirmities demonstrated by Mr. Edgar.
To frame the issue, the Court finds that, as the Debtors contend, insolvency is
determined, in part, by the fair market price that a debtor could obtain through the sale of its
assets in a prudent matter. See In re SunEdison, Inc., 556 B.R. 94, 104 (Bankr. S.D.N.Y. 2016)
(“the test for insolvency turns on a comparison between the debtor’s debts and the ‘fair
valuation’ of its property. ‘Fair value, in the context of a going concern, is determined by the fair
market price of the debtor’s assets that could be obtained if sold in a prudent manner within a
reasonable period of time to pay the debtor’s debts.’”) (internal citation omitted). The TLA
Claimholders acknowledge as much. See TLA Claimholders Obj. ¶ 28. Mr. Dellepiane’s
methodologies, as described above, fail to follow this directive. Neither the DCF Methodology
nor the Distributable Value Waterfall assesses the aggregate price TLA could obtain for its assets
and, thus, both fail to calculate the fair value of its assets. Indeed, Mr. Dellepiane testified that he
sought to calculate the “fair market value of the company”, not the fair value of individual
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property. See May 17, 2022 Hr’g Tr. – Public Session, 117:21-118:3; see also id. at 118:4-10
(admitting he did not calculate the proceeds from the sale of individual assets).
The Court agrees with the Debtors that the Distributable Value Waterfall methodology
applied by Mr. Dellepiane does not accurately measure if TLA is insolvent. The Debtors say that
is so for two primary reasons: (1) it ignores claims excluded from Mr. Herlihy’s analysis; and (2)
it excludes certain liabilities that TLA would hold if it operated alone.
The Debtors contend that the Distributable Value Waterfall undercounts TLA’s liabilities
at only $1.08 billion, which, in turn, artificially inflates TLA’s alleged solvency. Edgar Rebuttal
Decl. ¶ 13.41 Mr. Edgar says that is so because the Distributable Value Waterfall was never
intended to, and does not, provide an exhaustive list of the value of all debts of the individual
operating entities. Rather, as with its calculation of assets, it simply takes the liabilities of the
consolidated Debtor group and distributes them across each Debtor. Id. Edgar claims that the true
value of TLA’s liabilities is one of the following: (1) $1.72 to $1.938 billion (reflecting total
claims against TLA in the “Cleansing Blowout Materials” the Debtors publicly disclosed in
November 2021); or, more accurately (2) $3.5 billion (reflecting the total liabilities listed on
TLA’s most recent balance sheet). Id. ¶ 14.
The Court agrees. While Mr. Dellepiane recognizes that TLA’s liabilities may be higher
than the $1.08 billion reflected in the Herlihy Waterfall Backup, neither his declarations nor
evidence at trial provide any compelling reason why TLA’s balance sheets do not accurately
reflect TLA’s liabilities at $3.5 billon, as described below. Instead, Mr. Dellepiane simply adopts
the Distributable Value Waterfall’s allocated amount of liabilities without further analysis. If the
41 	Debtors Tr. Ex. 7 (Rebuttal Declaration of Brock Edgar in Support of the Debtors) (“Edgar Rebuttal Decl.”).
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balance sheets are correct and TLA’s liabilities are approximately $3.5 billion42 —and the Court
finds they were unrebutted at trial—it tops the $3.446 billion value of TLA’s assets under the
Distributable Value Waterfall. As such, even utilizing the Distributable Value Waterfall (but
correcting for Mr. Dellepiane’s undercount of TLA’s liabilities) the Court finds the methodology
demonstrates that TLA is insolvent, not solvent.
Mr. Edgar also contends that beyond undercounting TLA’s liabilities, the Distributable
Value Waterfall ignores additional liabilities TLA would hold if it operated alone. Edgar
Rebuttal Decl. ¶ 15. He says that is so, in part, because LATAM Parent (or another operating
entity) owns most of the aircraft that TLA operates. TLA rents the majority of its fleet through
short-term subleases from other Debtors. Id. ¶ 16. Because of the short-term leasing structure,
TLA avoids holding the liabilities of those aircraft. Id. If that was not the case, Mr. Edgar
contends that TLA’s fleet-related liabilities would balloon by $1.386 billion—all of which he
contends should be added to Mr. Dellepiane’s calculations. Id. ¶¶ 16-17.
The TLA Claimholders have failed to rebut these criticisms. There is no evidence in the
record demonstrating why an additional $1.386 billion in liabilities should not be subtracted from
the $3.446 billion value of TLA produced by the Distributable Value Waterfall (even assuming
arguendo the Distributable Value Waterfall honors the definition of “insolvent” under section
101(32) of the Bankruptcy Code). The Court finds that including this figure renders TLA even
further insolvent and, thus, provides further support for why the Distributable Value Waterfall
does not help the TLA Claimholders satisfy their burden to show TLA is solvent.
42 	Mr. Dellepiane takes issue with utilizing TLA’s financial statements to assess the fair value of its assets and
liabilities, claiming they utilize book values of assets and liabilities, which can differ from fair value. See TLA
Claimholders Tr. Ex. 123, Amended Rebuttal Declaration of Santiago Dellepiane, dated May 15, 2022 ¶¶ 17-22. But
his criticism focuses largely on how the fair value of assets may exceed their book value, not on the fair value of
liabilities.
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In failing to account for the liabilities set forth above, Mr. Dellepiane has overlooked
section 101(32)’s directive that TLA is solvent only if “the sum of [its] debts is” not greater than
its assets. See 11 U.S.C. § 101(32). Mr. Dellepiane’s consideration of only a subset of TLA’s
liabilities plainly does not provide a calculation of “the sum” of its liabilities. See id.
Moreover, the Court finds the Distributable Value Waterfall is ill suited to assess the fair
value of the assets and liabilities of any individual Debtor and thus does not provide a solvency
analysis. Mr. Herlihy performed a waterfall analysis to determine if the Class 4 Compromise
falls within the range of reasonable outcomes. See, e.g., Herlihy Report at 69. He concluded such
a settlement was in fact reasonable, in part, because it was crafted as part of the RSA
negotiations, which “include various interrelated terms” and ultimately culminated in the
Backstop Agreements and the Plan and paved the way for the Debtors to emerge from Chapter
11. See, e.g., id. at 62-64. In other words, his analysis is predicated on a holistic review of the
Class 4 Compromise and a task of determining whether the settlement falls within a range of
reasonableness when viewed in the context of the requests from the holders of the LATAM
2024/2026 Bonds and how the RSA, Backstop Agreement, and ultimately the Plan itself, rest, in
part, on recognizing those requests. See id. at 69 (“Based on a holistic review of these scenarios,
PJT determines that it was within the range of reasonableness to pay 100% of the principal and
accrued pre-petition interest on [the LATAM 2024/2026 Bonds] in cash at emergence, without
any post-petition interest or new money investment rights.”); see also id. at 62 (“Without the
Class 4 Treatment, as part of the comprehensive plan terms that addressed their various claims, it
is unlikely that the parties to the RSA and related exit new money commitments under the
Backstop [] Agreements . . . would have supported the Plan and provided the approximately
$5.4bn of commitments that they have agreed to provide”). That directive does not speak to
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whether “the sum of [TLA’s liabilities] is greater than all of [TLA’s property] . . . .” See 11
U.S.C. § 101(32). Section 101(32) does not call for such a holistic approach and Mr. Herlihy
does not purport to perform a solvency analysis through the Distributable Value Waterfall.43
The Debtors criticize the DCF Methodology because it relies on financial projections that
assume TLA will operate as part of the consolidated Debtor group. They say that assumption
inflates the value of TLA’s assets. See Debtors Omnibus Reply ¶ 113. These projections
incorporate the Debtors’ assumptions in their Business Plan and they contend that it is illogical
for Mr. Dellepiane to base his DCF Methodology on those assumptions and projections. Id. ¶
124. They say that is so because if the TLA Claimholders are successful in obtaining PPI at the
rate they calculate, it would substantially undermine their execution of the Business Plan by
extracting approximately $150 million in interest and thus depleting the cash and liquidity the
Debtors need to exit chapter 11. Id.
The Debtors also contend that the DCF Methodology fails to assess solvency as required
under section 101(32) of the Bankruptcy Code because it attempts to measure the current value
of future cash flows—amounts that are inherently subjective, indefinite, and do not speak to the
value of the assets TLA holds today or held at the Petition Date. See id. ¶ 113. The Court
agrees—the discounted value of future cash flows does not measure the “sum of . . . [an] entity’s
property” and, thus, does not provide a fair value of an entity’s assets from which to compare the
fair value of its liabilities. See 11 U.S.C. § 101(32). In other words, the DCF Methodology, by
attempting to measure today’s value of TLA’s future cash flows under the assumptions in the
Business Plan, does not speak to the test called for under section 101(32). Put simply, it does not
43 	The disconnect between Section 101(32)’s definition of insolvency and the Distributable Value Waterfall is
reinforced by the fact that Mr. Dellepiane did not review the Bankruptcy Code’s definition of “insolvent” as part of
rendering his opinion. May 17, 2022 Hr’g Tr. – Public Session at 102:21-24.
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provide a means to determine the fair value of TLA today. Courts have regularly expressed
skepticism of discounted cash flow valuations for this reason. See, e.g., In re Breitburn Energy
Partners LP, 582 B.R. 321, 331 (Bankr. S.D.N.Y. 2018) (a “forward-looking discounted cash
flow analysis . . . is even more subjective [than a precedent-transactions or comparable-company
analysis]. It involves predicting future revenues and expenses, and therefore requires
assumptions regarding future prices and future costs . . . that are no more than guesses.”); In re
PTM Techs., Inc., No. 10-50980c-11W, 2013 WL 4519306, at *6 (Bankr. M.D.N.C. 2013)
(finding measurements of cash flow do not measure solvency under section 101(32) of the
Bankruptcy Code). Accordingly, the Court finds that the DCF Methodology does not accurately
measure the fair value of TLA’s assets and, thus, does not accurately determine if TLA is
solvent.
The Liquidation Analysis and Balance Sheet Test Comport with Section 101(32)
Mr. Edgar utilizes two methodologies: (1) a liquidation analysis (the “Liquidation
Analysis”); and (2) a balance sheet analysis (the “Balance Sheet Test”). TLA is insolvent under
both. The Court finds both methodologies satisfy section 101(32) of the Bankruptcy Code for the
reasons set forth below.
The Liquidation Analysis analyzes the funds that would be raised if each item of property
(i.e., each asset) of TLA were sold at market value in an orderly sale process,44 and then
44 	The Liquidation Analysis sets forth values for the following categories of liabilities: wind down costs, DIP
carve out, payment of secured claims up to the value of collateral, DIP repayment, payment of administrative and
priority claims, and payment of general unsecured claims. It provides no recovery to these final two categories
because of insufficient recovery from TLA’s assets in the hypothetical liquidation. See Debtors Tr. Ex. 4
(Liquidation Analysis of TAM Linhas Aereas S.A.) (“TLA Liquidation Backup”).
Mr. Edgar presents the Liquidation Analysis for the aggregate Debtor group, as well as for each individual
Debtor, including TLA. See TLA Liquidation Backup; Debtors Tr. Ex. 3 (Declaration of Brock Edgar in Support of
the Liquidation Analysis Presented in Exhibit B to the Fifth Revised Disclosure Statement of LATAM Airlines
Group S.A., et al.) (the “Edgar Disclosure Statement Decl.”), at Ex. 2. The Liquidation Analysis contemplates a
“low recovery scenario” and a “high-recovery scenario.” In a low-recovery scenario, asset realization recoveries are
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compares that total amount to the total amount of TLA’s claims and liabilities. Debtors Omnibus
Reply ¶ 116. Mr. Edgar estimates that the sale of property yields between $360.1 and $490.8
million45 —an insufficient amount to pay all administrative and priority claims, let alone all
claims (i.e., the general unsecured claims, including the TLA GUCs). See TLA Liquidation
Backup. Because claims against TLA constitute part of its liabilities, the Liquidation Analysis
purports to show that TLA is insolvent.
Under the Balance Sheet Test, Mr. Edgar compares TLA’s total liabilities and assets as
reflected on: (1) TLA’s 2021 audited financial statements; and (2) TLA’s March 2022 unaudited
balance sheet. Using both sources, TLA’s assets exceed its liabilities and, thus, Mr. Edgar
contends TLA is insolvent. See Edgar Decl. ¶ 11. The 2021 financial statement shows that TLA’s
liabilities as of December 31, 2021 exceeded its assets by more than BRL 2 billion (or
approximately $360 million). Id. The monthly balance sheet shows that TLA’s liabilities
assumed to be negatively impacted while claims not already finally determined in the Chapter 11 claims process are
estimated at their highest potential amount. Edgar Decl. ¶ 9. This scenario assumes a liquidation over a 12-month
period. Edgar Disclosure Statement Decl. ¶ 12. In a high-recovery scenario, the liquidation proceedings are assumed
to occur over an 18-month period, asset realization recoveries increase, and claims not finally determined in the
Chapter 11 claims process are estimated at a lower potential amount. Edgar Decl. ¶ 9. Based on these two
paradigms, Edgar states the Liquidation Analysis presents a range of potential recoveries creditors may likely
receive under a hypothetical Chapter 7 liquidation proceeding. In both the low- and high-recovery scenarios, Edgar
estimates that TLA’s unsecured creditors recover nothing. Edgar Decl. ¶ 10.
45 	Mr. Edgar states that the proceeds from the hypothetical liquidation of TLA include the following assets: cash
and cash equivalents, accounts receivable, intercompany receivables, “other financial assets” (assets held for sale,
cash deposits, certain collateralized letters of credit, and other cash financial guarantees provided to secure the
supply of aircraft equipment and other goods and services), prepaid expenses and deposits, inventory, other
receivables and prepayments, intangible assets, property, plant and equipment, deferred tax assets, and investments
in related parties. Edgar Disclosure Statement Decl., Ex. 2 § D.1. Mr. Edgar assigns both a “book value”
(approximately $1.912 billion in total) and “proforma value” (approximately $1.468 billion in total) to these assets,
which he then multiplies by his hypothetical low-end and high-end recovery percentages. See TLA Liquidation
Backup. This yields a collective recovery of $360.1 to $490.8 million. See id.
Mr. Edgar indicates that he derives the fair value of each asset by estimating what it could be sold for in the
market. For example, the Liquidation Analysis relies on third-party appraisals for certain assets, such as spare parts
inventory, and relies on blue book valuation reports for aircraft. Edgar Disclosure Statement Decl., Ex. 2 § D.1.
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exceeded its assets by BRL 6 billion (or approximately $1.3 billion). Id.46 Accordingly, Mr.
Edgar contends that TLA is insolvent using either source.
Mr. Dellepiane contends that Mr. Edgar’s Liquidation Analysis does not provide the fair
value of TLA’s assets and liabilities and, thus, does not accurately compare the figures. First, Mr.
Dellepiane states that the Liquidation Analysis is unreliable because it reflects an assumption
that is at odds with the Debtors’ Business Plan—that TLA will not continue to operate post-
emergence as a going concern. See Am. Dellepiane Rebuttal Decl. ¶¶ 11-14. He says the
Liquidation Analysis itself recognizes this fact given its disclaimer stating: “THE
LIQUIDATION ANALYSIS DOES NOT PURPORT TO BE A VALUATION OF THE
DEBTORS’ ASSETS AS A GOING CONCERN.” Am. Dellepiane Rebuttal Decl. ¶ 12 (quoting
Edgar Disclosure Statement Decl., Ex. 2 at 4). Second, Mr. Dellepiane contends that the
Liquidation Analysis inaccurately includes liabilities that would not exist but for a liquidation47
(which, again, Dellepiane contends, is contrary to the Debtors’ Business Plan). Id. ¶ 15 (citing
Edgar Decl., Ex. 2 § B.4).
Mr. Dellepiane also contends that Mr. Edgar’s Balance Sheet Test does not accurately
value TLA’s assets and thus does not accurately determine if TLA is solvent. See id. ¶ 18. He
says that is so because the methodology relies on the book value of assets, which is the original
price paid for an asset less allowable depreciation. Id. Mr. Dellepiane contends that an asset’s
current or market value will exceed its book value for entities with “significant growth
opportunities.” Id. ¶ 20. He utilizes a bevy of examples where a company is balance-sheet
46 	See also Debtors Tr. Ex. 6 (Classified Financial Statements of TAM Linhas Aereas S.A.) (the “TLA Financial
Statements”).
47 	Mr. Edgar notes that these include: “employee termination and severance claims, tax liabilities and damages
claims related to the termination of executory contracts and unexpired leases, including claims arising from the
rejection of aircraft lease agreements.” Edgar Disclosure Statement Decl., Ex. 2 (Liquidation Analysis) § B.4.
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insolvent (utilizing book value of its assets), yet its market value is positive on a going concern
basis. Id., Figures 1-3 (showcasing negative book value of equity yet positive market
capitalization for American Airlines, Air France, and Air Canada across various years). He also
points to examples outside the aviation sector in an effort to purportedly discredit Mr. Edgar’s
methodology, noting that Starbucks’s recent Form 10-K suggests that it is “balance-sheet”
insolvent, yet trades a value of $133 billion. Id. ¶ 24. Mr. Dellepiane further contends that even
companies in chapter 11 proceedings can sell their assets in excess of book value, pointing to
Hertz Global Holdings Inc.’s sale of a subsidiary for a $400 million gain over book value. Id. ¶
25. Mr. Dellepiane also maintains that the Debtors implicitly concede that utilizing book value is
inappropriate given that Mr. Herlihy’s methodologies in assessing the Class 4 Compromise do
not rely on it, as demonstrated above. Id. ¶ 26.
The Court finds these criticisms are without merit. The Liquidation Analysis and Balance
Sheet Test both comport with the definition of “insolvent” under Section 101(32) of the
Bankruptcy Code. Unlike the Distributable Value Waterfall and DCF Methodology, they
measure TLA’s assets on an asset-by-asset basis. The TLA Liquidation Backup sets forth high-
and low-end recoveries for eleven categories of assets, which provide the total proceeds from
selling TLA’s assets. See generally TLA Liquidation Backup. Mr. Edgar compiled this data by
estimating what each asset could be sold for in the market over a twelve-to-eighteen month
period. See, e.g., Edgar Disclosure Statement Decl., Ex. 2 (Liquidation Analysis) § D.1. That
methodology comports with both the plain language of section 101(32) (calling for “the sum” of
an entity’s debts and liabilities) and caselaw measuring “fair valuation” for purposes of an
insolvency analysis—caselaw that the TLA Claimholders themselves cite. See 11 U.S.C. §
101(32); In re BWP Transp., Inc., 462 B.R. 225, 234 (Bankr. E.D. Mich. 2011) (adopting
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liquidation analysis detailing aggregate value of individual items of property if sold off at fair
market value). Moreover, the duration of the sale process in the high-end recovery scenario—18
months—undercuts the TLA Claimholders’ argument that the Liquidation Analysis provides
depressed, forced-sale asset recoveries and thus does not reflect “fair valuation.”48 Edgar
Disclosure Statement Decl., Ex. 2 § D (comparing the low-end recovery scenario where “asset
realization recoveries are assumed to be negatively impacted by the reduced liquidation time
frame” with the high-end scenario where “asset realization recoveries increase”). Under the high-
end scenario, the Liquidation Analysis aggregates TLA’s assets at $490.8 million—still well
short of providing TLA with a means to satisfy its liabilities and thus demonstrating TLA is
insolvent.
The Balance Sheet Test likewise aggregates the sum of TLA’s assets and liabilities unlike
the Distributable Value Waterfall and the DCF Methodology and, thus, the Court finds it also
satisfies section 101(32) of the Bankruptcy Code. TLA is insolvent under the Balance Sheet Test
because the sum of TLA’s assets exceed the sum of its liabilities by approximately $360 million
to $1.3 billion using year-end 2021 financial statements and March 2021 month-end statements,
respectively. Edgar Decl. ¶ 11. While Mr. Dellepiane takes issue with the use of book values in
the Balance Sheet Test, claiming that an asset’s true value may exceed its book value, he has
provided no concrete evidence that is the case for any particular asset of TLA and, moreover, he
takes no issue with the book value of liabilities listed in TLA’s financial statements. Given the
delta between TLA’s assets and liabilities on the March 2022 financial statement (i.e.,
approximately $1.3 billion), Mr. Dellepiane’s criticism does not even purport to demonstrate
how this gap could be bridged. See TLA Financial Statements. Moreover, courts regularly
48 	Mr. Dellepiane has set forth no evidence that an 18-month sale is somehow a rushed “fire sale” and does not
provide “fair valuation” under section 101(32) of the Bankruptcy Code. See Rebuttal Edgar Decl. ¶ 20.
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employ balance sheet tests to determine insolvency, i.e., whether the sum of an entity’s assets
exceeds the sum of its liabilities. See, e.g., In re PTM Techs., Inc., 2013 WL 4519306, at *6 ("the
Bankruptcy Code defines insolvency using the balance sheet test, not cash flow. The test for
whether a debtor is solvent is whether the debts of such entity are less than its assets, at fair
valuation”); In re Uhlmeyer, 67 B.R. 977, 980 (Bankr. D. Ariz. 1986) (“Insolvency is determined
by use of § 101[32] of the Code, the so-called balance sheet test: Debtor is insolvent if the sum
of her debts is greater than her assets at fair valuation”); see also 2 Collier on Bankruptcy P
101.32 (16th ed. 2022) (“the Code definition of insolvency is essentially a balance sheet test”).
Accordingly, for the reasons set forth above, the Court finds that Mr. Edgar’s Balance
Sheet Test and Liquidation Analysis appropriately assess whether TLA is solvent under section
101(32) of the Bankruptcy Code. The Court finds TLA is insolvent under both methodologies.
Accordingly, the TLA Claimholders have no right to recover PPI on the TLA GUCs.
Whether the Solvent Debtor Exception Is Applicable Under the Bankruptcy Code
Moreover, assuming arguendo that the TLA Claimholders could prove that TLA is
solvent, they nonetheless would not be entitled to PPI on the TLA GUCs at the rate set forth in
the Debt Instruments. The TLA Claimholders contend that the solvent debtor exception survived
the enactment of the Bankruptcy Code through section 1124(1) and, if TLA is solvent, they
should be permitted to recover PPI at the contract rate specified in the Debt Instruments.49 The
49 	The Debtors have requested that the Court exclude certain slides that the TLA Claimholders presented as part
of their argument at the evidentiary hearing concerning Plan confirmation (the “Closing Presentation”). The Debtors
contend that these slides are not proper demonstratives because they do not categorize or otherwise comment on the
record evidence, but instead present new legal argument and new case law absent from the TLA Claimholders
Objection.
The Court does not find that the Closing Presentation presents new legal arguments and, accordingly, declines
to exclude its contents. The slides at issue speak squarely to the legal theory behind the TLA Claimholders’
Objection to the Plan. These include (1) whether solvent debtors must pay PPI to creditors under section 1124(1);
(2) the evolution of the solvent debtor exception; (3) whether (and how) the solvent debtor exception survived the
enactment of the Bankruptcy Code; (4) the proper methodology to assess TLA’s solvency under section 101(32) of
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Court disagrees and finds that the solvent debtor exception survived through section
1129(a)(7),50 not section 1124(1). Because section 1129(a)(7) adopts section 726(a)(5) of the
Bankruptcy Code, which calls for interest to be paid “at the legal rate,” the Court finds that if
TLA was solvent, the TLA Claimholders would only be entitled to interest at the federal
judgment rate, not the so-called contract rate—i.e., the rate set forth in the Debt Instruments.
In support of their position, the TLA Claimholders rely heavily on a pre-Bankruptcy
Code case, Ruskin v. Griffiths, in which the Second Circuit articulated the solvent debtor
exception, which they contend requires that unsecured creditors of a solvent debtor receive their
full contract rights, including post-petition interest on their claims. See 269 F.2d 827, 832 (2d
Cir. 1959). They say that is so because the solvent debtor exception recognizes a long-standing
equitable principle: a debtor with the ability to pay his debts in full should be required to do so.
TLA Claimholders Obj. ¶ 29.
the Bankruptcy Code; and (5) the proper interest rate at which solvent debtors must pay PPI to their creditors. Courts
will exclude closing presentations as improper when they rely on new legal arguments, but here, the issues listed
above are not new. See, e.g., Bank One, Texas, N.A. v. F.D.I.C., 16 F. Supp. 2d 698, 706 (N.D. Tex. 1998) (“The
court has analyzed Bank One’s demonstrative aids by assessing whether they raise arguments included in Bank
One’s briefing, and has relied only on arguments and materials fairly presented in Bank One’]s briefs filed prior to
oral argument.”). And, moreover, with the exception of two slides in the Closing Presentation, the remaining
allegedly improper slides largely recast the same case law the parties have already debated in their briefs. With
respect to case law not discussed in the TLA Claimholders Objection or the Debtors Omnibus Reply, the Court finds
their inclusion in the Closing Presentation little different than had counsel simply raised them orally at the
evidentiary hearing—an avenue that even the Debtors could not reasonably object to.
50 	Section 1129(a)(7)(A) of the Bankruptcy Code states that:
(a) The court shall confirm a plan only if all of the following requirements are met:
(7) With respect to each impaired class of claims or interests—
(A) each holder of a claim or interest of such class—
(i) has accepted the plan; or
(ii) will receive or retain under the plan on account of such claim or interest property of a
value, as of the effective date of the plan, that is not less than the amount that such holder
would so receive or retain if the debtor were liquidated under chapter 7 of this title on such
date[.]
11 U.S.C. § 1129(a)(7).
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The TLA Claimholders contend the solvent debtor exception articulated in Ruskin has
survived the enactment of the Bankruptcy Code and thus provides an exception to section
502(b)(2)’s ban on post-petition interest. Id. ¶ 30. They say that is so based on the legislative
history of the repeal of section 1124(3) of the Bankruptcy Code. Id. ¶ 31. Thus, they claim that
section 1124(1) effectively codified Ruskin and provides the mechanism for them to recover PPI
from the Debtors. See id. ¶¶ 29-31.
In addition to citing the bar to the payment of PPI under section 502(b)(2), the Debtors
advance four primary arguments in opposition to paying PPI on account of the TLA GUCs. First,
the Debtors contend that the solvent debtor exception did not survive the enactment of the
Bankruptcy Code in the way the TLA Claimholders claim it did, as only sections 1129(a)(7) and
726(a)(5) of the Bankruptcy Code provide exceptions to section 502(b)(2) (as relevant here),
neither of which is applicable. Debtors Omnibus Reply ¶ 131. They claim if the solvent debtor
exception survived, it lives in those provisions, not within section 1124(1). Second, they contend
that the solvent debtor exception is not applicable because it is contrary to Supreme Court
authority that limits bankruptcy courts’ use of equitable power in a way that contravenes the
Bankruptcy Code. Id. ¶ 133. Third, the Debtors argue that even if the Court finds Ruskin remains
good law following the enactment of the Bankruptcy Code, it is distinguishable on its facts and
cannot provide a rationale to award the TLA Claimholders PPI on their claims. Id. ¶¶ 135-136.
And fourth, and relatedly, the Debtors contend that the TLA Claimholders misrepresent and
distort the post-Bankruptcy Code law concerning the solvent debtor exception, none of which
they claim supports a “freestanding equitable exception that permits a court to disregard §
502(b)(2)’s express disallowance of unmatured interest.” Id. ¶ 138. The Parent GUC Ad Hoc
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Group makes similar arguments in opposing the TLA Claimholders’ request. See Parent GUC
Ad Hoc Group Reply ¶¶ 32-41.
The TLA Claimholders and Debtors also debate what interest rate should apply to the
TLA GUCs, assuming that the TLA Claimholders are entitled to PPI. The TLA Claimholders
contend that Congress has “defined impairment in the broadest possible terms,” Taddeo v. Di
Pierro (In re Taddeo), 685 F.2d 24, 28 (2d Cir. 1982), and the “Bankruptcy Code creates a
presumption of impairment.” In re PPI Enter. (U.S.), Inc., 324 F.3d at 203; see also Windsor on
the River Assocs., Ltd. v. Balcor Real Estate Fin. (In re Windsor on the River Assocs., Ltd.), 7
F.3d 127, 130 (8th Cir. 1993) (“any alteration of a creditor’s rights, no matter how minor,
constitutes ‘impairment.’”). The TLA Claimholders concede that PPI has been calculated
differently by different courts. TLA Claimholders Obj. ¶ 34. Compare In re Ultra Petroleum
Corp., 624 B.R. 178, 198-199 (Bankr. S.D. Tex. 2020) (“Ultra Petroleum II”) (contract rate) and
In re Mullins, 633 B.R. 1, 19-20 (Bankr. D. Mass. 2021) (state judgment rate), with Hertz, 2021
WL 6068390, at *16 (federal judgment rate) and In re PG&E Corp., 610 B.R. 308 (Bankr. N.D.
Cal. 2019) (same).
The TLA Claimholders contend that the disparity in interest rates is new, and that,
decades ago, Ruskin directed that the contractual rate of interest should be applied to provide
creditors what they bargained for in solvent debtor cases. See Claimholders Obj. ¶¶ 35-36 (citing
Ruskin, 269 F.2d at 832 (reversing district court and applying PPI at the contractual default rate,
finding that such rate was neither a penalty nor unconscionable and reasoning that a solvent
debtor cannot be allowed to “escape the expressly-bargained-for result of its act”)).
The Debtors rely heavily on In re PG&E Corp., 610 B.R. 308, and Hertz, 2021 WL
6068390, to argue that, at best, the TLA Claimholders are entitled to PPI at the federal judgment
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rate. See Debtors Omnibus Reply ¶ 140; see also In re Daffy’s, Inc., No. 12-13312 (MG), 2013
WL 1703267, at *19 (Bankr. S.D.N.Y. Apr. 17, 2013) (“Courts have held that a creditor who
receives payment in full with interest at the federal judgment rate is not impaired”). The TLA
Claimholders contend that In re PG&E Corp. and Hertz should not be applied here because they
are contrary to binding Second Circuit precedent (i.e, Ruskin). TLA Claimholders Obj. ¶ 39.
They say these cases are premised on a mistaken finding that section 1129(a)(7) (the best interest
test) is the only basis to provide PPI to unimpaired unsecured creditors. In re PG&E Corp., 610
B.R. at 312 (bankruptcy court’s decision was based on its reading of Ninth Circuit precedent as
dictating that the best interests test, and the standard in section 726(a)(5) of the Bankruptcy
Code, was the only basis for unimpaired creditors of solvent debtors to obtain PPI); Hertz, 2021
WL 6068390, at *16 (“Significantly, neither the Bankruptcy Code nor the Legislative History
expressly states that unimpaired creditors are entitled to their contract rate of interest or even to
more than impaired creditors in the case of a solvent debtor. Instead, the Legislative History
provides strong evidence Congress intended that unimpaired creditors in a solvent chapter 11
debtor case should receive post-petition interest only in accordance with sections 1129(a)(7) and
726(a)(5).”).
The TLA Claimholders contend that the Court should not follow this line of cases (and
reasoning) because it is contrary to Second Circuit precedent, other rulings in this district, the
solvent debtor exception, and the Bankruptcy Code. TLA Claimholders Obj. ¶ 39 (citing In re
Mullins, 633 B.R. at 16 (“[I]n solvent debtor cases, the requirement in § 1129(b) that a plan of
reorganization be ‘fair and equitable’ may require the payment of postpetition interest on
allowed claims in amounts greater than would be required to satisfy the ‘best interests test’ of §
1129(a)(7)(A)(ii) and the ‘absolute priority rule’ set out in § 1129(b)(2)(B).”)). They say that is
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so because in the Second Circuit, an unimpaired creditor’s entitlement to receive contract rate
interest from a solvent debtor arises from equitable considerations and is not limited by the best
interest test. Id. ¶ 42 (citing In re 53 Stanhope, 625 B.R. at 578-79).
The Court finds that if TLA was solvent, the TLA Claimholders would be entitled to PPI
on the TLA GUCs at the federal judgment rate, not the rate called for in their Debt Instruments.
As set forth below, providing contract-rate interest is contrary to the express prohibition of
unmatured interest on claims under section 502(b)(2), relies too heavily on the reasoning in Ultra
Petroleum II, and mischaracterizes the degree to which (and how) the solvent debtor exception
has survived the enactment of the Bankruptcy Code.
In Ultra Petroleum II, the bankruptcy court on remand analyzed whether the solvent
debtor exception survived enactment of the Bankruptcy Code and, if so, what provision of the
Bankruptcy Code implicitly codified it and called for a solvent debtor to pay its unimpaired
unsecured creditors interest at their contract rate. 624 B.R. at 200-204. The court held that the
solvent debtor’s unimpaired creditors were entitled to post-petition interest at the contract rate
pursuant to section 1124(1) of the Bankruptcy Code in order to ensure their equitable rights to
such interest were not altered. Id. at 202; 11 U.S.C. § 1124(1) (“a class of claims or interests is
impaired under a plan unless . . . [it] leaves unaltered the legal, equitable, and contractual rights”
of a claimholder). It held as such based on the legislative history of section 1124 and the fact that
the provisions of the Bankruptcy Code that expressly codified aspects of the solvent debtor
exception—e.g., section 1129(a)(7)—were not applicable. Ultra Petroleum II, 624 B.R. at 200-
202. The court noted that Congress amended section 1124 in response to In re New Valley Corp.,
168 B.R. 73 (Bankr. D.N.J. 1994) (“New Valley”), which held that a solvent debtor’s plan
permissibly withheld post-petition interest from a class of unsecured creditors pursuant to section
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1124(3) of the Bankruptcy Code. Section “1124(3) stated that a claim was unimpaired where ‘the
holders of such claim . . . receive[d] . . . cash equal to . . . the allowed amount of such claim.’”
Ultra Petroleum II, 624 B.R. at 199 (quoting 11 U.S.C. § 1124(3) (1988)). In 1994, Congress
removed section 1124(3) from the Bankruptcy Code. See H.R. Rep. No. 103-835 (1994). In
doing so, it stated:
The principal change in this section ... relates to the award of postpetition interest.
In a recent Bankruptcy Court decision in New Valley, unsecured creditors were
denied the right to receive postpetition interest on their allowed claims even
though the debtor was liquidation and reorganization solvent. The New Valley
decision applied section 1124(3) of the Bankruptcy Code literally by asserting ...
that a class that is paid the allowed amount of its claims in cash on the effective
date of a plan is unimpaired under section 1124(3), therefore is not entitled to
vote, and is not entitled to receive postpetition interest .... In order to preclude this
unfair result in the future, the Committee finds it appropriate to delete section
1124(3) from the Bankruptcy Code.
Ultra Petroleum II, 624 B.R. at 200 (citing H.R. Rep No. 103-835, at 47-48 (1994)).
The court found that this excerpt from the House Reporter demonstrates that in enacting
the Bankruptcy Code, Congress did not intend to eliminate the solvent debtor exception for
unimpaired unsecured creditors of solvent debtors, notwithstanding that no provision of the
Bankruptcy Code expressly provided for them to receive PPI from solvent debtors.51 See id. at
199-200. Focusing on the “unfair result” evoked by Congress, the court found that the repeal of
section 1124(3) of the Bankruptcy Code demonstrated that unimpaired unsecured creditors must
receive their “bargained for interest”—i.e., interest under their contractual rates—through the
solvent debtor exception’s operation in section 1124(1). See id. at 200.
51 	The court recognized that the Bankruptcy Code codified the solvent debtor exception for impaired unsecured
creditors in section 1129(a)(7) of the Bankruptcy Code but found that provision could not justify an award of PPI to
unimpaired creditors. See Ultra Petroleum II, 624 B.R. at 202 (“[n]othing in the text of the Bankruptcy Code applies
§ 1129(a)(7) to unimpaired creditors.”). As such, it found it necessary to look elsewhere in the Code to “understand
the solvent debtor exception’s operation.” Id. at 200.
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However, Ultra Petroleum II does not persuasively demonstrate why Congress intended
for contract-rate interest to apply to creditors’ claims against solvent debtors. First, applying PPI
to unimpaired creditors’ claims is contrary to the express language of the Bankruptcy Code.
Section 502(b)(2)’s bar on unmatured interest is not limited to cases other than solvent debtors.
Congress could have amended this provision accordingly—in 1994 or otherwise—but it did not.
Second, Ultra Petroleum II analyzed only a part of the legislative history of the repeal of section
1124(3). Analyzing the Congressional record in a more fulsome way demonstrates that Congress
intended to address the “unfair result” of New Valley in the context of section 1129(a)(7), not
section 1124(1) where the court in Ultra Petroleum II grounded its analysis.
Judge Walrath found as much in Hertz; this Court finds that reasoning persuasive. The
court in Hertz also rejected Ultra Petroleum II’s conclusion that the legislative history of
Congress’ repeal of section 1124(3) of the Bankruptcy Code showcases Congress’ intent that the
solvent debtor exception survived enactment of the Code through section 1124(1) and calls for
unimpaired creditors of solvent debtors to receive contract-rate interest. In doing so, the Hertz
court noted that Congress explained the repeal’s impact as follows:
The principal change in this section is set forth in subsection (d) and relates to the
award of postpetition interest. In a recent Bankruptcy Court decision in In re New
Valley Corp., 168 B.R. 73 (Bankr. D.N.J. 1994), unsecured creditors were denied
the right to receive postpetition interest on their allowed claims even though the
debtor was liquidation and reorganization solvent.... In order to preclude this
unfair result in the future, the Committee finds it appropriate to delete section
1124(3) from the Bankruptcy Code.
As a result of this change, if a plan proposed to pay a class of claims in cash in the
full allowed amount of the claims, the class would be impaired, entitling creditors
to vote for or against the plan of reorganization. If creditors vote for the plan of
reorganization, it can be confirmed over the vote of dissenting class of creditors
only if it complies with the “fair and equitable” test under section 1129(b)(2) of
the Bankruptcy Code and it can be confirmed over the vote of dissenting
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individual creditors only if it complies with the “best interests of creditors” test
under section 1129(a)(7) of the Bankruptcy Code.
The words “fair and equitable” are terms of art that have a well established
meaning under the case law of the Bankruptcy Act as well as under the
Bankruptcy Code. Specifically, courts have held that where an estate is solvent, in
order for a plan to be fair and equitable, unsecured and undersecured creditors’
claims must be paid in full, including postpetition interest, before equity holders
may participate in any recovery.
637 B.R. at 796 (citing H.R. Rep. No. 103-835, at 48 (1994)).
Judge Walrath found that this synopsis from the House Reporter, analyzed collectively,
undermines the conclusion of Ultra Petroleum II that Congress intended to ground the solvent
debtor exception in section 1124(1) for unimpaired creditors of solvent debtors. Id. Judge
Walrath said that is so because:
[w]hile Congress states that it would be unfair in a solvent chapter 11 debtor case
for unimpaired creditors to receive no interest, it did not point to any provision of
the Code that would allow interest to be paid to unimpaired creditors. Instead, it
suggested that the failure to pay any interest to unsecured creditors in a solvent
chapter 11 debtor would make them impaired and thus eligible to be paid interest
by application of sections 1129(a)(7) and 1129(b)(2).
Id. Indeed, the legislative history explicitly cites section 1129(a)(7), not section 1124(1), while
discussing the “unfair result” in New Valley. The Court finds that this suggests that Congress
intended to preserve the solvent debtor exception in the context of the “best interest of creditors”
test under 1129(a)(7), not section 1124(1)’s requirement that a class of creditors is impaired
unless a plan leaves their “legal, equitable, and contractual rights” “unaltered.” See 11 U.S.C. §
1124(1). As analyzed above, the latter speaks to impairment under a “plan”, not the Bankruptcy
Code and, thus, forecloses any argument that unimpaired creditors of solvent debtors are entitled
to PPI at their contract rate. See id.; see also Ultra Petroleum I, 943 F.3d at 763; In re PG&E
Corp., 610 B.R. at 315-16 (reasoning that group of unsecured creditors of a solvent debtor were
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entitled to interest on their claims at the federal judgment rate, not the contract rate, and rejecting
argument that section 1124(1) demanded otherwise).
The Court finds that to reason otherwise—and deem the solvent debtor exception to be
embodied within section 1124(1)—is contrary to the Supreme Court’s directive that bankruptcy
courts avoid creating judicial exceptions that contravene express provisions of the Code. See,
e.g., Law v. Siegel, 134 S. Ct. 1188, 1196-97 (2014) (“the Code’s meticulous . . . enumeration of
exemptions and exceptions to those exemptions confirms that courts are not authorized to create
additional exceptions.”). That is so because of the unconditioned prohibition on unmatured
interest within section 502(b)(2). 11 U.S.C. § 502(b)(2) (a claim “shall [be] allow[ed] . . . except
to the extent that . . . such claim is for unmatured interest[.]”). Grounding the solvent debtor
exception in section 1129(a)(7), on the other hand, complies with Siegel by finding a textual
hook for the common law doctrine—one that comports with Congress’ intent as evidenced by the
House Reporter excerpt analyzed in Hertz. As such, the Court finds that to the extent the TLA
Claimholders are entitled to PPI, the award is derived from section 1129(a)(7) of the Bankruptcy
Code. See Hertz, 2021 WL 6068390, at *16 (“after consideration of the . . . express language of
the Bankruptcy Code, and its Legislative History, the Court is convinced that the solvent debtor
exception survived passage of the Bankruptcy Code only to a limited extent . . .. [including] in
section 1129(a)(7) and 726(a)(5) as to unsecured creditors.”).
That is not the end of the inquiry, as the Court must reconcile how section 1129(a)(7)—
which on its face applies only to an “impaired class of claims or interests”—applies to the TLA
Claimholders. If section 1129(a)(7) is applicable, it would yield the TLA Claimholders post-
petition interest on the TLA GUCs at the federal judgment rate—totaling approximately $3
million. That is so because section 1129(a)(7), the best interest of creditors test, prevents
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confirmation of a plan under chapter 11 if a dissenting impaired class obtains less under the plan
than it would if the debtor were liquidated under chapter 7. Ultra Petroleum II, 624 B.R. at 201.
Since an unsecured creditor under chapter 7 must receive post-petition “interest at the legal rate,”
11 U.S.C. § 726(a)(5), before any distribution to the debtor, section 1129(a)(7) operates to
provide impaired, unsecured creditors of solvent debtors with interest on their claims at the
federal judgment rate via section 726(a)(5) of the Bankruptcy Code.
The court in Hertz resolved this quandary by concluding that section 1129(a)(7) must
apply to both impaired and unimpaired creditors, notwithstanding that, by its plan language, it
applies only to the former. See Hertz, 2021 WL 6068390, at *16. Judge Walrath said that is so,
again, based on the legislative history of Congress’ repeal of 1124(3). That history, as detailed
above, abrogated New Valley, which held that unimpaired creditors were not entitled to post-
petition interest because “sections 726(a)(5) and 1129(a)(7) were only applicable to impaired
creditors and because section 1124(3) required only the payments of the allowed amount of their
claims. . . .” Id. at *11 (citing New Valley, 168 B.R. at 79-81). By abrogating that “unfair result”,
and explicitly referencing section 1129(a)(7), the Court in Hertz found that Congress must have
intended that both impaired and unimpaired unsecured creditors of solvent debtors who are
receiving payment of their claims in cash in full should receive PPI “at the legal rate,” see 11
U.S.C. § 726(a)(5)—i.e., the federal judgment rate. See Hertz, 2021 WL 6068390, at *16.
The Court agrees with Hertz and holds that if TLA was solvent, then the Debtors would
have to include PPI at the federal judgment rate to satisfy the TLA GUCs under the Plan. This is
so because the Court finds that the solvent debtor exception survived the enactment of the
Bankruptcy Code through section 1129(a)(7) (as relevant here), not section 1124(1) as the TLA
Claimholders contend. While the Court is cautious with reaching conclusions based, in part, on
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equitable principles that seemingly wrangle with the Bankruptcy Code, it finds that the
alternative outcomes—awarding no PPI or, alternatively, PPI at the rate under the Debt
Instruments—are simply untenable and illogical. The former would offend basic tenants of
fairness and the purposes of the Bankruptcy Code by essentially allowing impaired creditors to
be treated better than unimpaired creditors via an overly strict reading of section 1129(a)(7) that
is contrary to Congressional intent. While that outcome would comport with the plain language
of section 1129(a)(7), this Court is cognizant that it should not adopt an “overly literal
interpretation of the Bankruptcy Code,” but rather must craft holdings that give effect to the
Bankruptcy Code’s provisions in harmony with legislative history and public policy. See, e.g.,
CompuAdd Corp. v. Tex. Instruments Inc., (In re CompuAdd Corp.), 137 F.3d 880, 882 (5 th Cir.
1998); see also Buchwald v. Williams Energy Mktg. & Trading Co. (In re Magnesium Corp. of
Am.), 460 B.R. 360, 367 (Bankr. S.D.N.Y. 2011) (“Statutory provisions (including, and perhaps
especially, those in the Bankruptcy Code) must be considered in pari materia, and one statutory
provision in the Bankruptcy Code cannot be considered without reference to other relevant
provisions of the same statute, and its object and policy.”). And, if the Court followed Ultra
Petroleum II and awarded contract-rate PPI on the TLA GUCs, doing so would lack a clear
provisional hook in the Bankruptcy Code or its legislative history given that it rests on an
interpretation of section 1124(1) that the Court finds is not appropriate for the reasons set forth
above.
This result is not at odds with Ruskin, despite the TLA Claimholders claiming otherwise.
TLA Claimholders Obj. ¶ 42. They rely heavily on Ruskin, contending that it is binding Second
Circuit precedent that mandates that the Plan provide them PPI at the contractual rates set forth
in their Debt Instruments. TLA Claimholders Obj. ¶ 2. They say that is so because Ruskin
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articulated the common law solvent debtor exception in the Second Circuit by reasoning that
principles of equity and fairness dictate that a solvent debtor cannot “escape [its] expressly-
bargained for” agreements. Ruskin, 269 F.2d at 832. Furthermore, the TLA Claimholders
contend that Ruskin has survived the enactment of the Bankruptcy Code because it has been cited
approvingly by courts within the Second Circuit after Congress enacted the Bankruptcy Code.52
The Court does not disagree. But the TLA Claimholders fail to note that the cases they
cite primarily address whether oversecured creditors, not unsecured creditors, are entitled to
contract-rate interest from solvent debtors. See, e.g., In re Gen. Growth Prop., Inc., 451 B.R.
323, 328 (Bankr. S.D.N.Y. 2011) (“General Growth”) (awarding default interest at the contract
rate pursuant to section 506(b)); Urb. Communicators PCS Ltd. P’Ship v. Gabriel Cap. L.P., 394
B.R. 325, 338-340 (S.D.N.Y. 2008) (“Urb. Communicators”) (utilizing Ruskin to apply
contractual default rate to calculate interest due on oversecured creditors’ claims under section
506(b)”). That distinction matters because section 506(b) of the Bankruptcy Code expressly
provides that on “such claim[s], there shall be allowed to the holder of such claim[s], interest on
such claim . . . provided for under the agreement or state statute under which such claim arose.”
52 	For these reasons, the TLA Claimholders contend that the Court, bound by Ruskin and its progeny in the
Second Circuit, could not reach the same outcome as the court in Hertz. See TLA Claimholders Obj. ¶ 42. The TLA
Claimholders also contend that another recent bankruptcy court case, In re Mullins, undercuts Hertz’s logic
concerning where and how the solvent debtor exception survived the enactment of the Bankruptcy Code. See id. ¶
39 (citing In re Mullins for the proposition that “Hertz . . . should not be followed here as [it] runs counter to . . . the
solvent debtor exception[] and the Bankruptcy Code”). The Court rejects that argument because it ignores the fact
that In re Mullins and Hertz analyzed the solvent debtor exception in different legal contexts. The court in Hertz
addressed whether the solvent debtor exception could be encompassed within section 1124(1)’s requirement that to
be unimpaired, a plan must “leave[] unaltered the legal, equitable, and contractual rights” of a claimholder. See 11
U.S.C. § 1124(1). It found the solvent debtor exception did not survive within section 1124(1). See Hertz, 2021 WL
6068390, at *15 (“this Court cannot agree with the Bankruptcy Court in Ultra Petroleum [II] that being unimpaired
mandates that the Noteholders receive their contract rate of interest [under section 1124(1)] in contravention of
section 502(b)(2).”). The court in In re Mullins court found that the solvent debtor exception survived the enactment
of the Bankruptcy Code through section 1129(b)'s cram down provision and held that for the solvent debtor to
satisfy the "fair and equitable" provision of section 1129(b), it had to pay post-petition interest to an impaired class
of creditors that did not accept the plan. 633 B.R. at 16. As such, In re Mullins is inapposite because, here, the Plan
treats the TLA Claimholders as unimpaired and there is no need for the Court to analyze section 1129(b) of the
Bankruptcy Code.
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11 U.S.C. § 506(b). As such, unlike here, the creditors in General Growth and Urb.
Communicators benefited from an express textual hook in the Bankruptcy Code—section
506(b)—through which the bankruptcy court could exercise its equitable power. In other words,
unlike the case with unsecured creditors, the courts in General Growth and Urb. Communicators
were not faced with the potential for utilizing their equitable powers in a way that contravened
the Bankruptcy Code—i.e., the problem that, in the Court’s view, renders Ultra Petroleum II
unpersuasive, especially its holding that the solvent debtor exception for unsecured creditors was
de facto codified within section 1124(1).53 See, e.g., Hertz, 2021 WL 6068390, at *15-16.
In that sense, the Court finds that Ruskin provides a court-created tool from which a
bankruptcy court can construe express allowances through express provisions of the Bankruptcy
Code, like the interest rate used to calculate PPI due to oversecured creditors, without running
afoul of Siegel and creating judicial exceptions to the Bankruptcy Code’s provisions. See, e.g.,
General Growth, 451 B.R. at 328 (“The payment of default interest . . . is also consistent with the
increasing reluctance of courts in this and other circuits, in construing the requirement of §
506(b) that an oversecured creditor receive ‘interest,’ to modify private contractual arrangements
imposing default interest rates except where: (i) there has been creditor misconduct; (ii)
application of the contractual interest rate would cause harm to the unsecured creditors; (iii) the
53 	The TLA Claimholders also rely on In re 53 Stanhope seemingly to support the idea that Ruskin carves out a
separate stand-alone home for the solvent debtor exception. See TLA Claimholders Obj. ¶ 42 (citing In re 53
Stanhope, 625 B.R. at 578–79 (citing how “longstanding case law” can provide an exception to the Bankruptcy
Code’s ban on unmatured interest). The Court finds that the TLA Claimholders put too much emphasis on this
reference. See id. The court in In re Stanhope did not reason that exceptions to section 502(b) could be grounded in
case law, such as Ruskin, in a manner divorced from the plain language of the Bankruptcy Code, and its object and
policy. Further, the TLA Claimholders’ reliance on In re 53 Stanhope is curious given that the exceptions to section
502(b) in the excerpt it cited—i.e., (i) the “best interests” test in section 1129(a)(7)”; (ii) “the fair and equitable test
of section 1129(b)”; and (iii) “long standing case law”—did not provide the basis for its award of PPI to an
oversecured creditor. See id. Instead, section 506(b) did. See id. at 580 (“I therefore conclude that unimpairment
under section 1124(1) does not eliminate the factors that courts consider when they decide whether to apply a
contract interest rate under section 506(b) and, more specifically, the consideration of those factors when deciding
whether to employ a default rate as opposed to a non-default contract rate.”).
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contractual interest rate constitutes a penalty; or (iv) its application would impair the debtor's
fresh start.”); In re 53 Stanhope, 625 at 579 (“[i]t is well established that section 506(b) does not
require an oversecured creditor’s post-petition interest to be paid at any particular rate, the issue
here.”).
The TLA Claimholders further contend that, notwithstanding the above, the balance of
the equities separately entitles them to PPI on the TLA GUCs calculated at their contractual rate
of interest. See TLA Claimholders Obj. ¶ 45. They cite to the fact that section 1124(1) of the
Bankruptcy Code specifically states that a plan only unimpairs creditors when it leaves their
“equitable” rights unaltered. See 11 U.S.C. §1124(1). The Court is unpersuaded for the reasons
set forth above. Section 1124 speaks to impairment under a plan, not limitations expressly set
forth in the Code. See, e.g. Ultra Petroleum I, 943 F.3d at 765. As such, and as set forth above,
the Court declines to exercise its equitable powers in a manner at odds with the express language
of the Code, including its ban on “unmatured interest” (i.e., PPI) under Section 502(b)(2).54
But even if the Court indulged the TLA Claimholders, their argument is without merit.
The Court agrees with the Debtors that it would not be equitable to allow the TLA Claimholders
to receive approximately $150 million more to satisfy the TLA GUCs given the context of the
Plan. The Plan represents a delicate, intricate, and integrated compromise of myriad claims,
arguments, and rights. See, e.g., Plan § 5.2. As such, providing the TLA Claimholders with an
additional recovery would reduce the recoveries to impaired creditors under the Plan and risk
disrupting the delicate balance set forth in it. The Court will not sanction that result.
54 	As with their contention that they are entitled to PPI calculated with the rates set forth in the Debt Instruments
based on the Bankruptcy Code, the TLA Claimholders rely on caselaw concerning oversecured creditors, not
unimpaired unsecured creditors like TLA. See, e.g., General Growth, 451 B.R. at 328. These are distinguishable for
the reasons set forth above and thus provide no support for the TLA Claimholders’ equitable arguments.
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In conclusion, the Court overrules the TLA Claimholders Objection.55 The Court finds
that the TLA GUCs are treated as unimpaired under the Plan and that the Plan does not run afoul
of section 1124(1) of the Bankruptcy Code. As such, the Plan does not violate section 1129(a)(1)
of the Bankruptcy Code. Finally, the Plan does not violate section 1129(a)(8) with respect to the
TLA GUCs because the TLA Claimholders are not impaired and thus have no right to vote to
accept or reject the Plan.
55 	The Court also overrules the TLA Claimholders Supplemental Objection. This objection arose from the TLA
Claimholders’ supplemental deposition of Mr. Edgar, which took place after the Court concluded the evidentiary
hearing with respect to Plan confirmation. The Court permitted the TLA Claimholders to conduct this supplemental
deposition concerning an appraisal of the Debtors’ frequent flier program, LATAM Pass (the “FF Program”), which
the Debtors produced after the Court’s deadline for parties in interest to file objections to Plan confirmation.
The TLA Claimholders contend that the Court should not give credence to Mr. Edgar’s expert opinion because
his Liquidation Analysis fails to expressly value the FF Program, including specific aspects of the FF Program that
could be monetized (e.g., intellectual property associated with the FF Program and proceeds generated from selling
frequent flier points to third-party partners). See TLA Claimholders Supplemental Objection ¶¶ 1-7. They also
contend that TLA could have used the value of the FF Program to raise debt, which they claim undermines Mr.
Edgar’s conclusion that TLA could not continue to operate as a going concern without LATAM Parent. See id. ¶ 3;
see also Edgar Rebuttal Decl. ¶ 22 (“[w]ithout that association, it would be difficult for TLA to survive. It is
questionable whether TLA on a standalone basis would have been able to obtain sufficient DIP financing on its own
to survive . . . .”).
The Court finds no merit to these contentions. First, as discussed above, the TLA Claimholders, not the
Debtors, bear the burden of proof with respect to the issue of TLA’s solvency. The supplemental objection sets forth
no affirmative evidence of the value of the FF Program, let alone whether it is sufficient to boost the sum value of
TLA’s assets over its liabilities, as required under section 101(32) of the Bankruptcy Code. Second, the TLA
Claimholders appear to take issue primarily with Mr. Edgar’s Liquidation Analysis, not the Balance Sheet Test.
Even assuming arguendo that Mr. Edgar’s failure to expressly consider the value of the FF Program is fatal to the
Liquidation Analysis, the Court found above that the Balance Sheet Test adequately assesses whether TLA is
“insolvent” under section 101(32) (and indeed demonstrates TLA is insolvent). Finally, the Court declines to find
that the potential value of the FF Program undermines Mr. Edgar’s assessment that TLA could not obtain a loan. Mr.
Edgar assessed whether TLA could obtain a loan as a potential alternative for TLA to continue to operate as a going
concern without its affiliation with LATAM Parent and the financial benefits it obtains from that affiliation. See
Edgar Rebuttal Decl. ¶ 22. He concluded that TLA was unlikely to obtain DIP financing on its own for various
reasons, including its lack of available collateral. Id. The TLA Claimholders have set forth no evidence that the FF
Program is valuable enough to change that assessment.
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The Columbus Hill Objection
As a publicly held Chilean corporation, LATAM Parent is governed by the Corporations
Act,56 Corporations Act Regulation,57 and Securities Market Act,58 and regulations promulgated
thereunder. Ried Decl. at 6.59 It is also subject to the oversight of Chile’s securities regulator, the
Financial Market Commission (Comisión para el Mercado Financiero, or the “CMF”). Id. at 7.
Under the Corporations Act, a Chilean corporation cannot issue new shares of stock without first
obtaining shareholder approval. See Corporations Act, Art. 15. The Corporations Act also grants
the shareholders preemptive rights to subscribe for their pro rata portion of any shares issued by
that corporation. Id., Art. 25. The foregoing applies equally when the corporation is issuing
shares or securities convertible into shares. Id. It is only after the corporation has obtained
shareholder approval for the issuance of new shares, and the expiration of the mandated thirty-
day preemptive rights period, that a Chilean corporation may allocate or offer shares or
convertible securities that have not been purchased by existing shareholders, to third parties. Id.,
Arts. 25, 29. The corporation cannot offer those shares or convertible securities to third parties at
a price lower (or otherwise on terms more favorable) than the price or other terms offered to
shareholders during the preemptive rights period. Id., Art. 29.
56 	Law No. 18,046, Ley Sobre Sociedades Anónimas [Chilean Corporations Act], 1981, Diario Oficial [D.O.]
(the “Corporations Act”).
57 	Decree No. 702, Reglamento de la Ley de Sociedades Anónimas [Chilean Corporations Act Regulation], 2012
(the “Corporations Act Regulation”).
58 	Law No. 18,045, Ley de Mercado de Valores [Chilean Securities Market Act], 1981, Diario Oficial [D.O.] (the
“Securities Market Act”).
59 	Columbus Hill Tr. Ex. 1 (Declaration of José Miguel Ried) (the “Ried Decl.”). Mr. Ried is a Chilean lawyer and
a Professor of Commercial law in Chile. He provided expert testimony on various Chilean law matters in support of
the Columbus Hill Objection. Id. at 1.
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Article 15 of the Corporations Act provides that a corporation can offer new shares for
cash or non-cash “in kind” consideration. Id., Art. 15. Where the purchaser offers “in kind”
consideration for new shares, Articles 15 and 67 of the Corporations Act mandate (i) that the
corporation obtain appraisals of the “in kind” consideration from at least two qualified
independent experts (unless the shareholders vote unanimously to waive the requirement), and
(ii) that shareholders holding a two-thirds or greater supermajority of the outstanding shares
entitled to vote approve the transaction and the valuation. Id., Arts. 15, 67; see also Ried Decl. at
14-16; Puga Decl. at 4.60 It is settled that the “in kind” standards apply to the issuance of new
shares, but not to the issuance of convertible securities. See Third Contador Decl. ¶¶ 17-18; 61 see
also May 6, 2022 Ried Dep. at 64:22-65:6 (testifying that Corporations Act Article 15 does not
discuss convertible notes).62
Chilean courts and regulators evaluate transactions to ensure that Chilean corporations
are not seeking to avoid or impair the statutory appraisal, approval, and preemptive rights of
shareholders. They will not recognize transactions that are structured to avoid compliance with
these shareholder rights. See Ried Decl. at 18-20; Puga Decl. at 3. Under Chilean law, if a set of
purportedly valid legal acts is put in place either to obtain a result forbidden or avoided by the
law, or to conceal a breach of the law, those otherwise legal acts could be declared void under
the “simulation” (“simulación”) or fraud to the law (“fraude a la ley”) doctrines. Ried Decl. at
60 	Columbus Hill Tr. Ex. 2 (Declaration of Juan Esteban Puga) (the “Puga Decl.”). Mr. Puga is a Chilean lawyer
and Professor of Commercial law in Chile. He provided expert testimony on Chilean law matters in support of the
Columbus Hill Objection. Id. at 1.
61 	Debtors Tr. Ex. 18 (Declaration of Nelson Contador in Response to the Statements of Juan Esteban Puga Vial
and José Miguel Ried Concerning the Plan’s Alleged Violation of the Protections Granted to Shareholders of
LATAM Under Chilean Law) (the “Third Contador Decl.”). Mr. Contador is a Chilean lawyer and Professor of
Commercial law in Chile. He provided expert testimony on Chilean law matters in support of the Debtors’ request
that the Court confirm the Plan. Id., Ex. A (C.V. of Nelson Contador).
62 	Columbus Hill Tr. Ex.14 (May 6, 2022 Deposition of José Miguel Ried) (the “May 6, 2022 Ried Dep.”).
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18-20; Puga Decl. at 4. An act would be considered simulated if (i) it consists of a declared
intention that does not match the actual intention of the parties, (ii) the declared intention has
been agreed upon by both parties and (iii) the actual intention is to deceive third parties. Ried
Decl. at 18-19. In contrast, fraud to the law involves indirectly circumventing a legal mandate or
prohibition in a manner that it is rendered ineffective, and its final intention is evaded. Id. at 19.
While the purpose of simulation is to conceal a violation of the law, the purpose of a fraud to the
law is to circumvent a statutory rule. Id.
Columbus Hill asserts that the provisions of the Plan governing the issuance of the New
Convertible Notes violate Chilean law and cannot be implemented in Chile. For that reason, it
says that the Court must deny confirmation because the Plan does not satisfy section 1129(a)(11)
of the Bankruptcy Code since it is not feasible, and because the Debtors cannot show that they
proposed the Plan in good faith, as required by section 1129(a)(3) of the Bankruptcy Code.
See Columbus Hill Obj. ¶¶ 9, 46. Columbus Hill makes several arguments in support of the
objection. It contends that the Plan violates the preemptive rights of LATAM Parent’s
shareholders over stock, and securities convertible into stock, because it offers Class B Notes and
new LATAM Parent shares underlying the notes to the RSA Shareholders on better terms than it
offers to existing LATAM Parent shareholders. See id. ¶¶ 1, 8, 27; Ried Decl. at 3, 5. It also
asserts that the Plan violates the preemptive rights of the LATAM Parent shareholders to acquire
Class A Notes and Class C Notes and the new LATAM Parent shares underlying those notes
because it offers the notes to Holders of Allowed General Unsecured Class 5 Claims at lower
prices and on better terms than those that will be offered to existing shareholders during the
preemptive rights offering period. See Columbus Hill Obj. ¶¶ 1, 16-26; Ried Decl. at 4-5, 9-12,
36-37.
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On a different note, in support of the objection, Columbus Hill contends that the
procedures that the Debtors intend to implement in issuing the Class A Notes and Class C Notes
violate Chilean law. In substance, Columbus Hill argues that the Court must disregard the labels
attached to the notes and treat them as stock, because the Class A Notes and Class C Notes are
not bona fide debt instruments, but rather are vehicles for issuing new shares of LATAM Parent
common stock to General Unsecured Class 5 Creditors. See Columbus Hill Obj. ¶¶ 2, 31-33, 46;
Ried Decl. at 20-22. It asserts that, in reality, the Plan calls for Holders of Allowed General
Unsecured Class 5 Claims to make an “in kind” contribution consisting of the Allowed General
Unsecured Class 5 Claims in exchange for the new LATAM Parent shares. It maintains that the
Plan violates Chilean law because it does not call for LATAM Parent to obtain an appraisal of
the Allowed General Unsecured Class 5 Claims at fair market value, or for LATAM Parent’s
shareholders, by a vote of at least two-thirds of all shares, to approve both the issuance of the
shares to creditors in exchange for their claims, and the valuation of such claims. See Columbus
Hill Obj. ¶¶ 1, 16, 28-33; Ried Decl. at 17-18, 36-37. It asserts that the Chilean courts will not
merely reject the transaction. It contends that under the simulation or fraud to the law doctrines,
the Chilean courts will nullify and avoid the Debtors’ attempt to issue new shares of LATAM
Parent common stock to third parties in the form of “convertible notes” that are not bona fide
debt instruments. See Columbus Hill Obj. ¶¶ 31-32, 48-49; Ried Decl. at 9-11, 20-22, 36-37.
The Debtors challenge the objection. In short, they deny that the Plan compromises the
preemptive rights of the LATAM Parent shareholders with regard to the issuance of the New
Convertible Notes and new LATAM Parent shares underlying the notes. See Debtors Omnibus
Reply ¶ 86; Third Contador Decl. ¶¶ 34-37, 43. They also deny that LATAM Parent will acquire
the Allowed General Unsecured Class 5 Claims in consideration for the new LATAM Parent
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stock. They maintain that Columbus Hill mischaracterizes the transactions under the Plan and, as
a consequence, misstates applicable Chilean law. See Debtors Omnibus Reply ¶ 91; Third
Contador Decl. ¶ 36. They contend that the issuance of the New Convertible Notes under the
Plan complies with Chilean law and, if challenged in Chile, will be approved by the Chilean
courts and regulators. See Debtors Omnibus Reply ¶ 85; Third Contador Decl. ¶ 49.
The Court first considers Columbus Hill’s assertion that the Plan violates the LATAM
Parent’s shareholders’ preemptive rights over stock and securities convertible into stock pursuant
to the Class B Notes. Columbus Hill complains that non-controlling shareholders who purchase
the Class B Notes and their underlying shares will be subject to a four-year lock-up period, but
that the RSA Shareholders are excepted from this requirement for trades among themselves. See
Columbus Hill Obj. ¶¶ 8, 27, 44; Ried Decl. at 5. For that reason, it maintains that the Plan
violates Chilean law preemptive rights because it is offering these notes to the Backstop Parties
on preferential terms not available to the other shareholders. See Columbus Hill Obj. ¶¶ 8, 27,
44; Ried Decl. at 5. The Court questions that contention. Like all shareholders who are getting
the opportunity to participate in the Class B Notes based on their Chilean preemptive rights and
not as Plan distributions, the RSA Shareholders are subject to the lockup restrictions against
selling shares in the market, thus achieving the goal of the lockup. That they may trade shares
among themselves does not alter this restriction.
Columbus Hill also contends that the Plan violates LATAM Parent shareholders’
preemptive rights because under Chilean law, the Backstop Fee that the Debtors will pay the
Commitment Creditors under the Commitment Creditors Backstop Agreement is a direct 20%
discount that is not available to shareholders or other non-backstop parties. See Columbus Hill
Obj. ¶ 21, 26; see also Ried Decl. at 13-14; Commitment Creditors Backstop Agreement §
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3.1(a). However, that payment will be made in exchange for backstopping certain offerings
under the Commitment Creditors Backstop Agreement. See Backstop Opinion at 51 (“The
Backstop Payments to the Commitment Creditors provide consideration in exchange for that
substantial capital commitment to backstop the entire $3.669 billion new money investment for
the entire commitment period.”). The Debtors contend, and Columbus Hill does not dispute, that
the right to receipt of a fee in exchange for this commitment is not triggered by, has no relation
to, and is not paid as consideration for, the acquisition of the New Convertible Notes by the
Commitment Creditors in their capacity as unsecured creditors. See Debtors Omnibus Reply ¶
94; Third Contador Decl. ¶ 50. Thus, they maintain that “the [Class C Notes] Backstop Fee is not
consideration for the acquisition of the Notes that grants the [Commitment Creditors] an undue
benefit in comparison to the terms on which the Notes will be offered to the shareholders.” Third
Contador Decl. ¶ 51; see Debtors Omnibus Reply ¶ 94. It does not appear that Mr. Ried disputes
that contention. He testified that this preemptive rights argument would apply only if the
Backstop Fee on the Class C Notes were paid to shareholders of the Debtors. See May 6, 2022
Ried Dep. at 115:9-105:11. That is plainly not the case here.
The Court next considers Columbus Hill’s assertion that the provisions in the Plan
governing the issuance of the Class A Notes and Class C Notes violate Chilean law. The Class A
Notes and Class C Notes mature in ninety-nine years, pay no interest, have no contractual
covenants, and carry a conversion ratio that is cut in half if such note is not converted within
sixty days of the Effective Date. Columbus Hill Obj. ¶ 17. Moreover, once 50% of the Class A
Notes or 50% of the Class C Notes are converted, all the remaining notes in that respective class
will mandatorily convert simultaneously. See Class A Notes Term Sheet at 4; Class C Notes
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Term Sheet at 4.63 Columbus Hill asserts that because members of the LATAM Parent Ad Hoc
Group hold well over 50% of the Allowed General Unsecured Class 5 Claims, and all of them
will exercise the conversion rights under the notes on the Effective Date, it is a certainty that on
that day, all of the Class A Notes and Class C Notes will convert into LATAM Parent common
stock. See Columbus Hill Obj. ¶¶ 17, 33. 64 Columbus Hill argues that the Class A Notes and
Class C Notes are a “legal fiction” because their terms demonstrate that they are not genuine debt
instruments. Id. ¶ 17; see Ried Decl. at 9. It says that the notes are equivalent to equity and are
designed to permit LATAM Parent to issue shares of new common stock to the Holders of
Allowed General Unsecured Class 5 Claims in exchange, in part, for their Class 5 claims against
LATAM Parent, without invoking the “in kind” standards applicable under Articles 15 and 67 of
the Corporation Act. See Columbus Hill Obj. ¶ 17.65 It maintains that Chilean courts and
63 	The New Convertible Notes Class A Term Sheet (the “Class A Notes Term Sheet”) and the New Convertible
Notes Class C Term Sheet (the “Class C Notes Term Sheet”) are annexed to the Disclosure Statement as Exhibits E-
4 and E-6, respectively [ECF No. 4777].
64 	Columbus Hill maintains that the Debtors and every other party in interest in these cases openly acknowledge
this fact, and all pro forma projections and other financial materials in the Disclosure Statement assume the full
conversion of all the Class A Notes and Class C Notes. Columbus Hill Obj. ¶ 17 (citing Restructuring Term Sheet,
annexed to the Disclosure Statement as Exhibit E-3 [ECF No. 4777] at 6).
65 	Mr. Ried states, as follows:
The Class A and Class C Notes have a number of peculiarities that, taken together, show that they
are not bona fide debt instruments but are rather stock: they have a maturity of 99 years, bear no
interest, have no customary covenants from the issuer (in fact, they do not have any covenants),
and do not contemplate any events of default.
However, the most unusual feature of the notes is that they are, for practical purposes, mandatorily
convertible and, as I understand it, are expected to be converted on the effective date of the Plan.
The only sensible purpose of the bonds is to be immediately converted into LATAM shares.
Therefore, the Class A and Class C Notes have practically no value as debt instruments (99 year
bonds that pay no interest have a present financial value of, essentially, zero) and are all but
required to be converted into shares. In fact, the conversion is mandatory at any moment if 50% of
the notes are converted, which I understand will occur on the Plan effective date as soon as the
Commitment Creditors convert their Class C Notes.
Ried Decl. at 20-21.
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regulators will look through the form of the transactions and in focusing on their substance, will
hold the Debtors to the standards applicable to the issuance of new shares to LATAM Parent’s
creditors in exchange for, in part, non-cash consideration–i.e., unsecured claims against LATAM
Parent. See id. ¶¶ 31-33.66
Columbus Hill says that the Class A Notes are being issued in exchange for Allowed
General Unsecured Class 5 Claims, and the Class C Notes are being issued in exchange for
Allowed General Unsecured Class 5 Claims and cash. It maintains that these notes and their
underlying shares will be converted on the Effective Date, and that because they are being
exchanged for assets other than money–i.e., Allowed General Unsecured Class 5 Claims–Chilean
law requires the Debtors to provide at least two expert valuations of those Class 5 claims; and
66 	Mr. Ried maintains that the transaction violates the Chilean simulation and fraud to the law doctrines. He
contends that:
the overly complex structure of the convertible notes and its almost immediate and forceful
conversion into shares, combined with the preferential terms on which such convertible notes and
their underlying shares are available to unsecured creditors after the expiration of shareholders’
preemptive rights, has been put in place to capitalize the LATAM general unsecured claims in a
way that does not comply with otherwise applicable restrictions, including statutory mandates with
respect to preemptive rights and contribution in kind rules.
Ried Decl. at 22. “Therefore, it is [his] opinion that the different steps of the Plan would be considered fatally flawed
and declared void under the simulation or fraud to the law doctrines.” Id.
Mr. Contador denies that LATAM Parent could be found liable for actions taken in connection with the Plan
under either the simulation or fraud to the law doctrines. He maintains that the simulation doctrine is not applicable
because LATAM Parent’s declared intention does not differ from its true intention, and there is no claim that the
purpose is to deceive third parties. Third Contador Decl. ¶¶ 29-30. He says that the terms and effects of the
transactions devised under the Plan have been openly disclosed and there is no third party who could be “deceived”
by a declared intention which differs from the true intention. Id. ¶ 30. Further, he says that the fraud to the law
doctrine is not applicable because:
There is no legal rule prohibiting the issuance of the Notes or the payment to general unsecured
creditors with the cash proceeds obtained from the subscription and payment of the Notes by
shareholders during the preemptive offering or with any remaining Notes. [And there] is no legal
mandate directing a corporation to capitalize or acquire the claims against it instead of extinguishing
and paying those claims with cash arising from the subscription and payment of those Notes or with
the Notes themselves.
Id. ¶ 31.
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requires holders of at least two-thirds of the outstanding shares with voting rights to approve
these transactions. See id. ¶¶ 1, 16, 28-30; Ried Decl. at 14-18. It asserts that although the
Disclosure Statement acknowledges that existing shareholders must approve the issuance of the
Class A Notes and Class C Notes at an extraordinary meeting of the shareholders, the Debtors
incorrectly state that the requisite voting threshold for such approval is a simple majority of the
existing shares in attendance at the meeting. See Columbus Hill Obj. ¶ 29 (citing Disclosure
Statement). Columbus Hill contends that without obtaining this required two-thirds or greater
supermajority approval, the Plan transactions would be void under Chilean law. Id.; Ried Decl. at
22.
Columbus Hill also argues that the shareholders’ preemptive rights with respect to the
New Convertible Notes are illusory and do not comply with Chilean law. See Columbus Hill
Obj. ¶ 18; see also Ried Decl. at 8. It says that is so because existing LATAM Parent
shareholders must pay the full-face value of the Class A Notes and Class C Notes entirely in cash
to exercise their preemptive rights to acquire new LATAM Parent stock, but would receive
shares worth significantly less than the amount of cash paid, while the notes not acquired by the
LATAM Parent shareholders will be offered to Holders of Allowed General Unsecured Class 5
Claimson substantially more favorable terms (both in terms of the form of consideration and the
value of the consideration being provided by the creditors), all in violation of Chilean law. See
Columbus Hill Obj. ¶ 18.67
67 	Mr. Ried succinctly summarizes the issue, as follows:
[S]hareholders are being offered the Class A and Class C Notes for an aggregate price of $8.283
billion in cash. At Plan value, the stock underlying the Class A and Class C Notes is worth an
aggregate of approximately $5.092 billion [based on the Plan value set forth in the Disclosure
Statement and the RSA]. This means that LATAM’s shareholders are being asked to pay $1.64 for
every $1.00 worth of shares underlying the Class A and Class C Notes.
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The Debtors deny the Class A Notes and Class C Notes are being offered to Holders of
Allowed General Unsecured Class 5 Claims on different terms than they are offered to
shareholders. See Debtors Omnibus Reply ¶ 90. They correctly note that the Plan provides that
the notes will be offered to shareholders at par value, and to the extent the shareholders purchase
them, the proceeds will be used to pay the claims of the General Unsecured Class 5 Creditors.
See id.; Plan § 3.2(e). Any notes that remain after the preemptive rights period closes will be
used to pay and discharge the Allowed General Unsecured Class 5 Claims at par value. See
Debtors Omnibus Reply ¶ 90. Beyond that, the terms on which the notes are offered are
consistent. See id.
The Debtors also say that Columbus Hill mischaracterizes the transactions under the Plan
and, as a consequence, misstates applicable Chilean law. Id. ¶ 92. They maintain that Columbus
Hill’s objection rests on the erroneous assertion that the Holders of Allowed General Unsecured
Class 5 Claims are purchasing the notes from LATAM Parent with their Allowed General
According to my calculations, LATAM’s general unsecured creditors, on the other hand, are being
offered the Class A and Class C Notes for an aggregate price equal to the value of stock
underlying those notes. This means that the LATAM’s creditors in the aggregate are being asked
to pay $1.00 for every $1.00 worth of shares underlying the Class A and Class C Notes. Under the
Plan, if unsecured creditors were to purchase all the Class A and Class C Notes, they would pay in
part with $3.269 billion cash and in part with $5.014 billion in credits or claims ($8.283 billion in
face value of the Class A and Class C Notes minus $3.269 billion in cash yields $5.014 billion
face value for claims). To my knowledge, no party disputes that the $3.269 billion in cash payable
by LATAM general unsecured creditors will be exchanged for convertible notes and their
underlying shares that are similarly worth $3.269 billion. For the remaining $1.823 billion in
convertible notes and shares, the LATAM general unsecured creditors are paying with $5.014
billion in credits or claims. Simple math dictates that that the $5.014 billion in unsecured credits or
claims are worth no more than approximately 36.4%, which is the quotient of $1.823 billion in
convertible notes in shares divided by the $5.014 billion in unsecured credits or claims used to
acquire such convertible notes and shares. Allowing LATAM general unsecured creditors to
subscribe for the Class A and Class C Notes with an exchange of LATAM general unsecured
claims worth a fraction of their face value while requiring shareholders to pay a far higher price to
exercise preemptive rights with respect to such Class A and Class C Notes violates Chilean law.
Ried Decl. at 4-5; see also id. at 12 (“Requiring LATAM shareholders to pay the par value of convertible notes in
cash to exercise their preemptive rights while subsequently offering such convertible notes to creditors in exchange
for credits or claims against a debtor that are worth significantly less than par value violates Chilean law.”)
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Unsecured Class 5 Claims. Id. They assert that notwithstanding Columbus Hill’s claims to the
contrary, LATAM Parent will not acquire the claims. Id. The holders of those claims will neither
transfer their claims to LATAM Parent nor exchange those claims for either the Class A Notes or
Class C Notes. Third Contador Decl. ¶ 6. The Debtors maintain that when they incurred the
Class 5 general unsecured debt, they did so with the expectation that they would pay and
discharge that debt with cash. The Plan calls for them to do so with the proceeds generated from
the sale of the stock during the preemptive rights offering period. See Plan § 3.2(e). It also
provides that the Debtors will deliver any notes that remain available after the expiration of the
preemptive offering period to the Class 5 unsecured creditors in full satisfaction and settlement
of those claims. See id. The Debtors say that the Holders of Allowed General Unsecured Class 5
Claims are tendering the notes to pay, discharge and extinguish those claims, not to acquire
them. See Debtors Omnibus Reply ¶ 92; First Contador Decl. ¶ 24;68 Third Contador Decl. ¶¶ 3,
6-8, 11, 16. They say that they are authorized to do so because under Chilean law, pursuant to a
doctrine known as “dación en pago”, a debtor and its creditor can agree to extinguish a debt
obligation with an object different than the one originally owed. Debtors Omnibus Reply ¶ 92;
Third Contador Decl. ¶ 6. The Debtors say that under the Plan, Holders of Allowed General
Unsecured Class 5 Claims have agreed to receive payments on account of their claims in the
Class A and Class C Notes and that the Plan discharges and extinguishes those claims as if they
had been paid in cash. See Third Contador Decl. ¶ 8.69 (“[T]he claims will be extinguished by
their payment with the cash proceeds obtained from the subscription and payment from the notes
68 	Debtors Tr. Ex. 16 (Declaration of Nelson Contador Regarding Execution in Chile of a Foreign
Reorganization Plan Involving the Issuance of New Stock and Convertible Notes) (the “First Contador Decl.”).
69 	Mr. Contador does not dispute that the payment of the notes with general unsecured claims would result in the
transfer of the claims to LATAM Parent. Third Contador Decl. ¶ 8.
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by the shareholders during the preemptive offering period and with any notes remaining
unsubscribed after such preemptive offering period.”). The Debtors maintain that since LATAM
Parent will never acquire, possess, or otherwise hold the claims, it does not need to subject them
to an appraisal or obtain shareholder approval of the appraisal under Articles 15 and 67 of the
Corporations Act. See Debtors Omnibus Reply ¶ 92; Third Contador Decl. ¶¶ 8, 9 (noting that
“under Chilean law, notes are financial instruments and, therefore those who acquire them are
not subscribing equity or making an equity contribution in kind that should be appraised.”).70
Thus, they maintain that the Plan complies with Chilean law.
In support for their argument, the Debtors rely on the cases of Enjoy S.A. and La Polar
S.A. They contend that in those Chilean proceedings, the companies used and offered convertible
notes with terms that are almost identical to the notes at issue here to pay creditor claims in the
same way as the Debtors propose to do here, with the approval of their creditors and simple
majority of their shareholders and with the approval of the CMF, which reviewed and registered
the notes. First Contador Decl. ¶¶ 11-19, 24-25; Third Contador Decl. ¶¶ 46, 52-64; see also
Debtors Omnibus Reply ¶ 93.
70 	Mr. Contador explains that:
Under Chilean law, claims against LATAM are obligations, which may be extinguished by several
means listed in the Chilean Civil Code. Payment is one of these means. Another means is
confusion, which is when one person simultaneously holds the capacity of debtor and creditors
regarding the same obligation. Therefore, when a debtor acquires a claim against itself from its
creditor, the obligation or claim is extinguished by confusion. In the case of confusion, the claim is
previously transferred from the creditor to the debtor. On the other hand, when an obligation is
paid, either in kind or in cash, there is no transfer of the claim to the debtor and the debtor does not
acquire it, but instead the claim is extinguished while still held by the creditor.
Therefore, as the Notes will not be paid for with the claims of their creditors and LATAM will not
acquire the claims, the issuance of the Notes may be approved by a simple majority of the
shareholders and is not subject to an appraisal requirement.
Third Contador Decl. ¶¶ 11-12.
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Enjoy S.A. is a stock corporation whose shares are listed on the Santiago Stock
Exchange. Its Judicial Reorganization Agreement (the “JRA”) provided for, among other things
(i) the payment of more than 70% of the unsecured debt by means of delivery in payment of
notes convertible into shares; and (ii) the acquisition of new funds through the subscription and
payment of the convertible notes during their preemptive rights offering period by the
shareholders of Enjoy S.A. See First Contador Decl. ¶ 12; Columbus Hill Tr. Ex. 9 (Judicial
Reorganization Agreement of Enjoy S.A.) at 9-11. The JRA called for Enjoy S.A. to offer the
convertible notes to its shareholders at par value during the preemptive rights period, and then to
distribute to its general unsecured creditors, in full satisfaction of their claims (a) the proceeds of
the subscription and payment of the notes by the shareholders to the extent shareholders
exercised their preemptive rights; or (b) the convertible notes that were not acquired by the
shareholders during the preemptive rights offering period. First Contador Decl. ¶ 13. Under the
JRA, 80% of all unsecured claims would be paid, at par value, with two different series of
ninety-nine year maturity convertible notes, that accrued no interest and were convertible within
seventy-five days after the expiration of the preemptive rights offering period. Id. ¶ 14. Enjoy
S.A. neither acquired the claims of its creditors nor exchanged the convertible notes in return for
those claims. Rather, it used the new convertible notes to pay and discharge the claims of its
creditors, serving their purpose as negotiable instruments (títulos de crédito). Id. ¶ 15. In turn,
those creditors did not subscribe to or pay for the convertible notes with their claims, but instead
received the convertible notes in payment and satisfaction of their claims. Id.
Shortly after the court approved the JRA, Enjoy S.A. convened a shareholders meeting at
which the shareholders approved the capital increase and the issuance of the convertible notes.
Id. ¶ 16. After the shareholders approved the notes offering, Enjoy S.A. requested that the CMF
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register the convertible notes. Id. ¶ 17. After reviewing the procedures by which the convertible
notes were approved and issued, and making some observations, (Id., Ex. D-8 (Letter from the
CMF dated December 4, 2020, requesting Enjoy S.A. to clarify some issues before registration
of the notes)) the CMF duly registered the notes. Id. ¶ 17; Id., Ex. D-4 (Registration of notes in
the CMF Securities Register).71 The Debtors contend that Enjoy S.A. obtained the approval of its
JRA, (Id., Ex. D-2 (Enjoy S.A Creditors’ Meeting, dated August 14, 2020)) then carried out the
capital increase (Columbus Hill Tr. Ex. 7 (Aug. 26, 2020 Mins. of the Extraordinary Meeting of
the Shareholders of Enjoy S.A.)) and, in accordance with the JRA, the majority of the
shareholders waived their right to exercise any preemptive subscription right, and all the
requirements set forth in the proceeding, including the payment of the unsecured claims with the
convertible notes issued by the company to that end, were fulfilled. Columbus Hill Tr. Ex. 4
(Material Fact Report (Hecho Esencial), Enjoy S.A., Securities Registry Inscription No. 1,033,
Apr. 19, 2021); First Contador Decl., Ex. D-10 (Material Fact disclosed by Enjoy S.A., dated
April 30, 2021). The Debtors maintain that the final implementation of the payment of the
general unsecured claims through the delivery of convertible notes occurred successfully (First
Contador Decl., Ex. D-7 (Material Fact disclosed by Enjoy S.A., dated October 13, 2020)) and
on February 24, 2022, Enjoy S.A. fully complied with the obligations prescribed in its JRA,
71 	Before Enjoy S.A. submitted its Judicial Reorganization Agreement to a vote at the creditors’ meeting, a group
of shareholders that in the aggregate owned 60.52% of the company signed a support agreement stating that:
(i) they agreed to attend a shareholders’ meeting to be held upon the approval of the Judicial
Reorganization Agreement and vote in favor of the company’s capital increase,
(ii) they agreed to waive their preemptive subscription right regarding notes convertible into
shares to be issued, whenever said rights arise under the terms of the support agreement and
(iii) they agreed to refrain from selling their shares.
In addition, Enjoy S.A.’s Judicial Reorganization Agreement included, as a condition precedent
for the agreement to become effective, the main shareholders’ fulfillment of the obligations
undertaken in the support agreement.
First Contador Decl. ¶ 18.
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which was deemed concluded for all legal purposes, thus ceasing to be subject to the Judicial
Reorganization Procedure, without objections from the creditors or any government agency. Id. ¶
19.
La Polar S.A. is a stock corporation whose shares are listed on the Santiago Stock
Exchange. Its approved reorganization plan (the “La Polar Plan”) provided that the debtor would
issue convertible notes that would be first offered to its shareholders at par value in compliance
with their preemptive rights. Id., Ex. D-5 (Extraordinary Shareholders’ Meeting Minute of
Empresas La Polar S.A., dated August 8, 2014) at 36. The notes had a ninety-nine year maturity
and accrued no interest. The La Polar Plan called for unsecured creditors to be paid with the
proceeds of the subscription and payment of the convertible notes by the shareholders, or with
the convertible notes that remained available after the preemptive rights offering. Id., Ex. D-5
(Extraordinary Shareholders’ Meeting Minute of Empresas La Polar S.A., dated August 8, 2014)
at 36. At the shareholders meeting convened by La Polar, the shareholders approved the issuance
of convertible notes. Thereafter, the notes were submitted for registration with the CMF, which
after reviewing the procedure, duly registered the notes. Id., Ex. D-4 (Registration of notes in the
CMF Securities Register).
The Debtors maintain that in Enjoy S.A. and La Polar S.A., the requirement of the two-
thirds majority of the outstanding voting shares or the prior valuation of the claims against the
company under the Corporation Act were not applicable because the convertible notes were not
acquired with the claims but given in payment of the claims. Id. ¶ 25. In substance, the Debtors
maintain that Enjoy S.A. and La Polar S.A. provide a “road map” for a restructuring that calls for
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the issuance and distribution of convertible notes in satisfaction of creditor claims under Chilean
law. 72
Columbus Hill contends that the Debtors overstate the significance of Enjoy S.A. and La
Polar S.A. and that those cases provide no support for the Plan. To summarize, it asserts that the
transactions executed by Enjoy S.A. and La Polar S.A. were never judicially tested, are
materially different than the transactions proposed here in the Plan and were formally approved
by shareholders holding more than two-thirds of the outstanding shares with voting rights. It
contends that both transactions were fully consensual, with no objections. These transactions
were also explicitly described as a capitalization of outstanding claims against the companies. As
a result, it contends that those cases provide no precedent or support for the Plan, and that the
transactions called for under the Plan violate Chilean Law. See Columbus Hill Obj. ¶¶ 34-40;
Ried Decl. at 24-25.
The Debtors maintain that Enjoy S.A. and La Polar S.A. support their position that
convertible notes have been issued under Chilean law and used to pay unsecured creditors in
reorganization agreements in terms substantially identical to those devised in the Plan. They
deny that Enjoy S.A.’s and La Polar S.A.’s reorganization agreements were implemented with
the consent of all shareholders and outside of contested legal processes. They maintain that the
Enjoy S.A. and La Polar S.A. cases were challengeable legal proceedings conducted before
72 	Mr. Contador summarized, as follows:
In my opinion, the structure and mechanics of the equity increase through equity and convertible
notes devised in the Plan . . . complies with all Chilean law requirements . . . and is substantially
similar to that implemented in the Enjoy S.A. and La Polar S.A. proceedings. Further, as noted
with respect to the Enjoy S.A. and La Polar S.A. proceedings, the requirement to have the
favorable vote of two-thirds of the issued shares with voting rights or to have a prior valuation of
the credits against the company would not be applicable to LATAM’s offering of convertible
notes and securities.
First Contador Decl. ¶ 25.
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Chilean courts in which the reorganization agreements were approved despite the negative vote
of certain creditors. Third Contador Decl. ¶¶ 53-54. Moreover, they assert that the CMF and the
Chilean Insolvency Agency were aware of the terms and conditions of the agreements and raised
no objections. They contend that the notes were submitted for registration with the CMF, which
duly registered the notes after reviewing the procedures by which they were approved and issued
and after requesting certain clarifications from Enjoy S.A. First Contador Decl., Ex. D-8. They
argue that if the CMF had any objection, it would not have registered the notes. Id. ¶ 55; see also
Debtors Omnibus Reply ¶ 93.
Columbus Hill and the Debtors agree that the Chilean courts and regulators will have the
final say on whether the procedures in the Plan governing the issuance of the Plan Securities
comply with Chilean law. Yrarrázaval Decl. ¶¶ 54-56;73 Columbus Hill Obj. ¶ 14; see also
Second Contador Decl. ¶ 1974 (“Failure to comply with the regulations governing capital
increases in public corporations, including the need to approve a capital increase at a
shareholders’ meeting and to provide shareholders with preemptive rights to subscribe to the
capital increase if they wish, would cause the absolute nullity of the act providing for the
issuance of the new shares.”); May 17, 2022 Hr’g Tr. at 197:9-199:14 (Ried) (asserting that if the
Court confirms that Plan, even a single shareholder will have the power to object to the Plan in
the Chilean courts and with the CMF).
Section 1129(a)(3) of the Bankruptcy Code mandates that a “plan [be] proposed in good
faith and not by any means forbidden by law.” 11 U.S.C. § 1129(a)(3). Under this section, “a
plan will be found in good faith if it ‘was proposed with honesty and good intentions and with a
73 	Columbus Hill Tr. Ex. 6 (Declaration of Arturo Yrarrázaval) (the “Yrarrázaval Decl.”).
74 	Debtors Tr. Ex. 17 (Declaration. of Nelson Contador in Response to the Statements of Rodrigo Delaveau and
Juan Luis Goldenberg Concerning the Public Policy Exception Under Chilean Law) (the “Second Contador Decl.”).
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basis for expecting that a reorganization can be effected.’” Argo Fund, Ltd. v. Bd. of Dirs. of
Telecom Argentina, S.A., 528 F.3d 162, 169 (2d Cir. 2008) (quoting Koelbl v. Glessing (In re
Koelbl), 751 F.2d 137, 139 (2d Cir. 1984)). Columbus Hill does not challenge the Debtors’
process in formulating the Plan. Rather it contends that the Debtors filed the Plan in bad faith
because it violates Chilean law. That argument is misplaced because “the requirement of Section
1129(a)(3) speaks more to the process of plan development than the content of the plan.” In re
Chemtura Corp., 439 B.R. 561, 608 (Bankr. S.D.N.Y. 2010) (citations omitted). Whether the
Plan complies with Chilean law will be addressed, if at all, by the Chilean courts and regulators.
The Court need not and will not attempt to resolve that issue in considering whether the Plan
satisfies section 1129(a)(3). “[T]he plain language of section 1129(a)(3) does not require that the
Plan’s contents comply ‘in all respects with the provisions of all nonbankruptcy laws and
regulations’ because it ‘speaks only to the proposal of a plan.’” In re Charter Commc’ns, 419
B.R. 221, 261 (Bankr. S.D.N.Y. 2009) (quoting In re Buttonwood Partners, Ltd., 111 B.R. 57, 59
(Bankr. S.D.N.Y. 1990)); accord Garvin v. Cook Invs. NW, SPNWY, LLC, 922 F.3d 1031, 1035
(9th Cir. 2019) (“[W]e conclude that § 1129(a)(3) directs courts to look only to the proposal of a
plan, not the terms of the plan.”).
The Court recognizes that some courts find that a plan that violates applicable non-
bankruptcy law is not filed in good faith and is not confirmable under section 1129(a)(3).
However, in those cases the courts find that on its face, the plan violates applicable law. See, e.g.,
In re Walden Palms Condo Ass’n, 652 B.R. 543, 550 (Bankr. M.D. Fla. 2020) (denying
confirmation where the plan called for legal costs incurred by an individual unit owner to be paid
by the entire condominium community in clear violation of Florida law); In re Arm Ventures,
564 B.R. 77, 86 (Bankr. S.D. Fla. 2017) (“the Amended Plan is based on an enterprise illegal
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under Federal law, and therefore one that I cannot confirm because the Debtor cannot satisfy the
requirements of 11 U.S.C. § 1129(a)(3)”); see also In re Food City, Inc., 110 B.R. 808, 813 n.12
(Bankr. W.D. Tex. 1990) (suggesting that an illegal plan provision is less likely to be proposed in
good faith). But see Garvin v. Cook Invs., 922 F.3d at 1035-36 (not sustaining a plan objection
pursuant to 1129(a)(3) where the plan clearly violated federal law noting that 1129(a)(3)
concerns legality of the proposal and not substantive provisions). Even under that standard, the
Plan does not run afoul of section 1129(a)(3). Based on the foregoing, the Court finds that there
is legitimate debate among Columbus Hill and the Debtors regarding the enforcability of the
procedures in the Plan governing the issuance of the Plan Securities under Chilean law. The Plan
does not clearly, if at all, violate Chilean law. The Court overrules Columbus Hill’s Objection to
the Plan as violating section 1129(a)(3).
Section 1129(a)(11) of the Bankruptcy Code requires that the Court determine that:
Confirmation of the plan is not likely to be followed by the liquidation, or the
need for further financial reorganization, of the debtor or any successor to the
debtor under the plan, unless such liquidation or reorganization is proposed in the
plan.
11 U.S.C. § 1129(a)(11). To demonstrate that a plan is feasible a debtor is not required to prove
that it will successfully reorganize its business. Rather, “the feasibility standard is whether the
plan offers a reasonable assurance of success. Success need not be guaranteed.” See Kane v.
Johns-Manville Corp, 843 F.2d 636, 649 (2d Cir. 1988); see also In re DBSD North America,
Inc., 419 B.R. 179, 202 (Bankr. S.D.N.Y. 2009) (“In making determinations as to feasibility, . . .
a bankruptcy court does not need to know to a certainty or even a substantial probability, that the
plan will succeed. All it needs to know is that the plan has a reasonable likelihood of success.”)
(collecting cases). For a debtor to withstand a creditor’s or interest holder’s challenge to the
feasibility of a plan on the grounds that it violates applicable non-bankruptcy law, it must
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demonstrate that the Plan has a “reasonable prospect of success.” See In re TCI 2 Holdings, LLC,
428 B.R. 117, 155 (Bankr. D.N.J. 2010) (finding the plan to be feasible where there was a
reasonable prospect that new owners of casino could obtain necessary gaming licenses); see also
In re Food City, Inc., 110 B.R. at 812 n.10, 813 n.12 (noting that an “obvious illegality” exposes
a plan to feasibility considerations). Courts find that plans that violate applicable non-bankruptcy
law on their face fail the feasibility test. See In re Walden Palms Condo. Ass’n Inc., 625 B.R. at
550 (finding that the creditor’s plan was infeasible in that it clearly violated Florida law, thereby
surpassing the reasonable prospect of success standard); In re Wabash Valley Power Ass’n Inc.,
No. 85–2238–RWV–11, 1991 WL 11004220, at *73-74 (Bankr. S.D. Ind. August 7, 1991)
(finding that a competing plan clearly violated Indiana state law and denying confirmation under
1129(a)(11)). The facts and law in the record do not support a determination that the Plan is
“obviously illegal” under Chilean law. The Court finds that the Debtors have demonstrated that
they have reasonable grounds for contending that the Plan complies with Chilean law.
Accordingly, the Court overrules Columbus Hill’s Objection and in doing so, finds that, as the
Plan relates to Chilean law matters, the Debtors have demonstrated that the Plan complies with
section 1129(a)(11) and is feasible.
The A&P Ad Hoc Group Objection
The A&P Ad Hoc Group asserts that the Plan provides the Commitment Creditors with
unprecedented value in comparison to other pari passu Holders of the Allowed General
Unsecured Class 5 Claims (the “Non-Commitment Creditors”), and that the Plan’s economics
disclose that the Backstop Fees are disproportionately high compared to the risks the
Commitment Creditors are assuming in providing the Commitment Creditor Backstop
Agreement. It contends that those payments are nothing more than a mechanism through which
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the Commitment Creditors can take greater value and recovery from the Debtors’ estates at the
expense of other similarly situated creditors. See A&P Ad Hoc Group Obj. ¶¶ 1-4, 22-26. The
A&P Ad Hoc Group asserts that the Plan violates section 1123(a)(4) of the Bankruptcy Code
because it does not provide for equal treatment of General Unsecured Class 5 Creditors, and
thus, the Plan does not satisfy section 1129(a)(1). It also contends that the Plan violates section
1129(a)(4) of the Bankruptcy Code by paying excessive and unreasonable fees to the
Commitment Creditors. See id. ¶¶ 3-4, 22-34. The Debtors dispute those contentions. The Court
considers those matters below.
Section 1123(a)(4) of the Bankruptcy Code addresses intra-class treatment and requires
that a plan “provide the same treatment for each claim or interest of a particular class, unless the
holder of a particular claim or interest agrees to a less favorable treatment of such particular
claim or interest.” 11 U.S.C. § 1123(a)(4); see In re Adelphia Commc’ns Corp., 368 B.R. 140,
249 (Bankr. S.D.N.Y. 2007); In re Quigley Co., 377 B.R. 110, 116 (Bankr. S.D.N.Y. 2007).
Thus, by its terms, this provision does not mandate that members of the same class receive the
same treatment on account of their claims. See In re Quigley, 377 B.R. at 116 (“Section
1123(a)(4) does not require precise equality, only approximate equality”).
The A&P Ad Hoc Group complains that while the Non-Commitment Creditors and the
Commitment Creditors are classified together in Class 5, the Commitment Creditors will receive
a far superior opportunity for recovery compared to the Non-Commitment Creditors who, by
default, receive Class 5a Treatment of their claims. See A&P Ad Hoc Group Obj. ¶¶ 22-24. It
asserts that the Commitment Creditors–who automatically receive Class 5b treatment-receive
over 85% of the Class C Notes through the Direct Allocation Amount, the ability to subscribe
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70.74% 75 of their remaining Allowed Claims after the Direct Allocation Amount, and Backstop
Fees totaling $734 million. Id. ¶¶ 4, 23.
The A&P Ad Hoc Group contends that the award of 85% of the Class C Notes to the
Commitment Creditors converts to a 43.4% recovery (before factoring in any fees) on account of
their General Unsecured Class 5 Claims, while the Non-Commitment Creditors also are slated to
receive Class 5 treatment, but will receive their pro rata share of the $1.467 billion Class A Notes
issuance—which will result in a 19.3% recovery on their similarly-situated General Unsecured
Class 5 Claims. Id. In this light, the A&P Ad Hoc Group alleges that the inequality in
opportunity for recovery among creditors holding the exact same type of claims is stark as (i) the
limitation on the Non-Commitment Creditors’ ability to subscribe to the Class C Notes permits
the Commitment Creditors to impermissibly receive outsized recoveries; and (ii) the fees payable
pursuant to the Commitment Creditors Backstop Agreement are in no way commensurate to the
risk associated with providing the backstop. Id. ¶ 24.
This element of the A&P Ad Hoc Group Objection implicates two aspects of section
1123(a)(4) of the Bankruptcy Code. The first is that it requires equality of treatment, among
creditors in the same class, not equality of result. It is satisfied if claimants in the same class have
the same opportunity for recovery. See In re W.R. Grace & Co., 729 F.3d 311, 327 (3d Cir.
2013) (“[C]ourts have interpreted the ‘same treatment’ requirement [of section 1123(a)(4)] to
mean that all claimants in a class must have ‘the same opportunity’ for recovery.”); Ad Hoc
Comm. of Pers. Inj. Asbestos Claimants v. Dana Corp. (In re Dana Corp), 412 B.R. 53, 62
(S.D.N.Y. 2008) (“The key inquiry under § 1123(a)(4) is not whether all of the claimants in a
75 	The most recent version of the Plan, filed after the A&P Ad Hoc Group submitted their objection to the Plan,
notes that the Commitment Creditors now have the ability to subscribe to 72.46% of their remaining Allowed
Claims after the Direct Allocation Amount. Plan § 5.10.
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class obtain the same thing, but whether they have the same opportunity.”). The second is that
“[t]he requirements of section 1123(a)(4) apply only to a plan’s treatment on account of
particular claims or interests in a specific class—not the treatment that members of the class
may separately receive under a plan on account of the class members’ other rights or
contributions.” In re Adelphia Commc’ns Corp., 368 B.R. at 250-51; see also In re CHC Grp.,
Ltd., Case No. 16-31854 (BJH), 2017 WL 11093971, at *12 (Bankr. N.D. Tex. Mar. 3, 2017)
(finding that put option premium payable to plan sponsors as consideration for commitment to
backstop rights offering was not a distribution on account of plan sponsors’ claims); In re TCI 2
Holdings, LLC, 428 B.R. 117, 133 (Bankr. D.N.J. 2010) (finding that backstop fee proposed to
be paid to the Backstop Parties was not a distribution to the parties on account of their claims); In
re Heron, Burchette, Ruckert & Rothwell, 148 B.R. 660, 672 (Bankr. D.D.C. 1992) (“The
objectors fail to distinguish between a partner’s treatment under the plan on account of a claim or
interest and treatment for other reasons. Only the former is governed by § 1123(a)(4).”). The
Debtors maintain that the Plan satisfies both aspects of section 1123(a)(4) because all Holders of
Allowed General Unsecured Class 5 Claims have the same opportunity for recovery, are being
treated equally, and that the Backstop Fees and Direct Allocation are distributed to the Backstop
Parties in consideration for their willingness to backstop the Class C Notes and the ERO Rights
Offering, not on account of their General Unsecured Class 5 Claims. See Debtors Omnibus
Reply ¶¶ 40-42. The Court agrees.
The treatment that the Commitment Creditors are receiving in their capacity as Holders
of Allowed General Unsecured Class 5 Claims of LATAM Parent is the same as the Non-
Commitment Creditors in Class 5. Each General Unsecured Class 5 Creditor will receive, in full
satisfaction and discharge of its claims, the opportunity to elect for either (i) Class 5a Treatment,
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consisting of the receipt of Class A Notes plus its pro rata portion of the cash payments now
provided under the Plan, or (ii) Class 5b Treatment, consisting of the receipt of its pro rata share
of the New Convertible Notes Class C Offering (the latter of which requires a new money
contribution) plus its pro rata portion of the cash payments now provided under the Plan. See
Plan § 3.2(e)(ii); see also Backstop Opinion at 17-18 (describing Class 5 treatment); Disclosure
Statement §§ V.A.1(e), V.B.10. 76 Non-Commitment Creditors are free to choose which of the
two treatment options they prefer. The Non-Commitment Creditors who elect to receive Class 5b
Treatment receive the same distribution on account of their claims as the Commitment Creditors
– i.e., each receives their pro rata share of the Class C Notes in exchange for the contribution of
new money and their General Unsecured Class 5 Claims. See Class C Notes Term Sheet at 4;
Plan §§ 3.2(e), 5.10. The additional compensation that the Commitment Creditors will receive
under the Plan is not based on their status as Holders of Allowed General Unsecured Class 5
Claims; it is in consideration for their commitments described in the Commitment Creditors
Backstop Agreement. See Commitment Creditors Backstop Agreement at 1-2, 8, 12, 24, 33-35;
Disclosure Statement §§ I.A, IV.K; Herlihy Report at 61 (describing consideration provided by
Commitment Creditors). This includes the Direct Allocation Amount, the Backstop Fees and the
Class C Backstop Commitment, which are each described at length in the Commitment Creditors
Backstop Agreement. See Commitment Creditors Backstop Agreement at 8, 12, 24, 26, 33-35;
Disclosure Statement § IV.K.
76 	Pursuant to the amendments filed on May 11, 2022, the Plan now includes an additional election option, Class
5c Treatment, which entitles a General Unsecured Creditor to elect to receive its pro rata share of New Local Notes.
See Plan § 3.2(e). The Backstop Parties generally are not eligible to elect Class 5c Treatment. See id.; Commitment
Creditors Backstop Agreement § 2.2(a). The Class 5c Treatment is simply another option that General Unsecured
Creditors may elect to receive and does not change the equal treatment analysis.
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The Commitment Creditors Backstop Agreement clearly states that the Direct Allocation
Amount and the Backstop Fees are provided to the Commitment Creditors in their roles as
Backstop Parties. Commitment Creditors Backstop Agreement at 2 (“[P]ursuant to the terms of
this Agreement, the Company will offer the Backstop Parties [Class C Notes] . . . in an aggregate
principal amount equal to the Direct Allocation Amount.”), 33-35 (describing payment of the
Backstop Fees). That the Commitment Creditors must discharge their claims to access the Direct
Allocation Amount does not implicate section 1123(a)(4) of the Bankruptcy Code. It is the
mechanism through which Class C Notes are obtained. See Plan § 3.2(e). Under the Class C
Backstop Commitment, the Commitment Creditors are agreeing to purchase the unsubscribed
Class C Notes at the Class C Purchase Price, see Commitment Creditors Backstop Agreement at
15 (defining the Class C Purchase Price), 26 (defining the Class C Backstop Commitment), after
the Non-Commitment Creditors have declined the opportunity to subscribe to their pro rata share
of Class C Notes, in lieu of electing to receive Class 5a Treatment. See Plan § 1.1 (defining
Commitment Creditors); id. § 3.2(e). That is to say that they are committing to purchase Class C
Notes at the Class C Purchase Price, even if other Holders of Allowed General Unsecured Class
5 Claims (i.e. the Non-Commitment Creditors) decline to do so. The Commitment Creditors’
obligation to purchase unsubscribed Class C Notes does not provide them with something of
value unavailable to the Non-Commitment Creditors. The Commitment Creditors are not
receiving outsized recoveries on account of their Allowed General Unsecured Class 5 Claims.
The A&P Ad Hoc Group complains that the Backstop Fees create a section 1123(a)(4)
problem because they “are in no way commensurate to the risk associated with the backstop.”
A&P Ad Hoc Group Obj. ¶ 24. However, in the Backstop Opinion, the Court found that the
benefits to the Commitment Creditors were reasonable, see Backstop Opinion at 85, and that the
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Direct Allocation Amount and the Backstop Fees are appropriate given the risks assumed by the
Commitment Creditors, including the “risks of material changes to the Debtors’ business outlook
which could negatively impact the price of the Debtors’ stock” such as “the Omicron variant and
volatile fuel prices.” Id. at 50-51. These findings are equally applicable here.
Moreover, the A&P Ad Hoc Group asserts that “despite the Commitment Creditors and
[Non-Commitment] Creditors having the same types of claims, only the Commitment Creditors
were invited to the table and provided with resulting opportunities to participate in the Direct
Allocation and Commitment Creditors Backstop Agreement.” A&P Ad Hoc Group Obj. ¶¶ 25-
26. Relying on In re Pacific Drilling S.A. (“Pacific Drilling”), No. 17-13193 (MEW), 2018
Bankr. LEXIS 3024, at *6 (Bankr. S.D.N.Y. Oct. 1, 2018), the A&P Ad Hoc Group contends
that “the Plan’s failure to ensure equal opportunity to claimants within the same class violates
section 1123(a)(4) of the Bankruptcy Code and renders the Plan unconfirmable.” Id.
Pacific Drilling does not suggest that compensating the Backstop Parties through the
Direct Allocation Amount and Backstop Fees implicates section 1123(a)(4). Courts approve
Plans with similar provisions. See In re TCI 2 Holdings, LLC, 428 B.R. at 133; In re CHC Grp,
Ltd., 2017 WL 11093971, at *12. Moreover, this Court considered and rejected the same
arguments in the Backstop Opinion. In opposing the Backstop Motion, the objecting parties
(including the A&P Ad Hoc Group) contended that in pursuing the Backstop Agreements, the
Debtors did not conduct arm’s-length negotiations with third parties for the best financing terms
possible, but, instead, settled for an unreasonable deal with the Commitment Creditors that vastly
overcompensates them with special treatment, generous fees, and steep discounts to divert
money to the Debtors’ controlling shareholders and procure votes by the Commitment Creditors
in favor of the Plan. See Backstop Opinion at 31. They asserted that the Debtors’ intent to favor
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the Commitment Creditors is evident from the fact that the Commitment Creditors hold roughly
70% of the Debtors’ general unsecured claims and, as such, are collectively a key voting block
needed to approve the Plan. Id. They maintained that the Debtors failed to conduct a fair process
in negotiating the Backstop Agreements because they (i) limited their pool of prospective
counterparties for the Backstop Agreements to the RSA Shareholders and a handful of large
creditors; (ii) failed to respond to a competing backstop financing proposal from Ducera Partners
LLC (“Ducera”); and (iii) failed to subject the Commitment Creditors Backstop Agreement to
market competition. Id. They also asserted that the LATAM Parent board lacked sufficient
information to properly vet the Backstop Agreements. Id.
The Court found no merit to those contentions. In doing so, and as relevant, the Court
found that:
The Plan is the “best alternative” for the Debtors to emerge from these Chapter 11
Cases and is a product of hard-fought and lengthy mediation overseen by Judge
Gropper, which focused in part on issues of Chilean securities law and Chilean
shareholder rights in these Chapter 11 Cases.
The Debtors explored a number of restructuring proposals during the pendency of
these Chapter 11 Cases and contacted numerous investment funds and other
entities in an effort to raise capital, and the Debtors’ financial condition was open
and obvious, suggesting that parties with workable financing offers had the
opportunity to come forward and work with the Debtors.
No entity sought to provide the Debtors with backstop proposals that would
provide a framework to permit the Debtors to raise a level of capital they believe
to be necessary to emerge from the Chapter 11 Cases.
The Ducera Proposal fell short of a viable alternative or substitute for the
Backstop Agreements because the proposal consists of an unsigned letter offering
no binding commitments, and, among other things, the proposal: (i) did not
provide sufficient committed capital; (ii) has an expansive due diligence condition
that would allow the A&P Ad Hoc Group to withdraw its proposal at any time, at
its sole discretion; and (iii) did not provide a secure path to confirmation.
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Id. at 33, 36. The Court adheres to its rulings in the Backstop Opinion. The A&P Ad Hoc Group
has failed to demonstrate grounds for denying confirmation under section 1123(a)(4) of the
Bankruptcy Code.
Section 1129(a)(4) of the Bankruptcy Code requires that “[a]ny payment made or to be
made by the proponent, by the debtor . . . for services or for costs and expenses in or in
connection with the case, or in connection with the plan and incident to the case, has been
approved by, or is subject to the approval of, the court as reasonable.” 11 U.S.C. § 1129(a)(4).
The A&P Ad Hoc Group contends that while payments of backstop fees under a plan to support
financing are permitted, here, the Backstop Fees are not reasonable, and the economics of the
Plan expose that the payment of the fees is nothing more than “a disguised means of giving
bigger creditors a preferential recovery.” A&P Ad Hoc Group Obj. ¶ 27 (quoting Pacific
Drilling, 2018 Bankr. LEXIS 3024, at *6-7). The A&P Ad Hoc Group argues that a backstop fee
is reasonable only to the extent that it protects against the actual risk of a lack of participation in
a rights offering. Id. ¶ 28. It contends that the Backstop Fees fail to serve this basic function
because the Commitment Creditors have already committed themselves to approximately 85% of
the Class C Notes, and the Plan economics provide the Debtors and Commitment Creditors with
near certainty that the remaining approximately 15% of Class C Notes will be fully subscribed.
Id. ¶ 29. It maintains that as no reasonable creditor would choose to receive an inferior recovery,
this superior recovery virtually guarantees full participation in the Class C Notes and greatly
diminishes the purported risk to the Commitment Creditors. Id. Moreover, it contends that if the
Debtors and the Commitment Creditors wanted to guard against the risk that the Class C Notes
would not be fully subscribed, they could have encouraged parties entitled to subscribe to the
Class C Notes to participate without a cap limitation. It contends that doing so would provide for
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an equitable pro rata backstop by all eligible Holders of Allowed General Unsecured Class 5
Claims. Id. ¶ 31. Finally, the A&P Ad Hoc Group asserts that in assessing the reasonableness of
the Backstop Fees, the Court must consider that the Commitment Creditors allegedly leveraged
their power to reject any plan proposed by the Debtors to obtain extraordinary fees and
recoveries beyond that of other similarly situated creditors. Id. ¶ 34 (noting that the Debtors
acknowledge that “throughout the negotiation process” the Commitment Creditors maintained
they “could vote down any plan.”); Id. ¶ 34 n.42 (quoting Jan 29, 2022 Alfonsín Dep. Tr. at
96:14–97:22.).
In opposing the Backstop Agreements, the A&P Ad Hoc Group and others argued that
because the Debtors seek to enter into the Backstop Agreements in connection with the Plan, the
agreements must meet the standards of section 1129(a)(4). See Backstop Opinion at 29, 83. The
Court disagreed and, instead, the Court found that sections 363 and 503 governed the Backstop
Motion, and that section 1129(a)(4) was not relevant to the motion. Id. at 84. In support of the
objection to the Backstop Motion, the objecting parties argued that (i) “the Backstop [Fee] is
unreasonable and unnecessary because the economics of the Plan guarantee full participation of
the Class C Notes,” (ii) “even if the Debtors are correct that there is a risk that the Class C Notes
would not be fully subscribed, then . . . the New Convertible Notes Offering Procedures should
be altered to permit oversubscription by all parties entitled to subscribe,” and (iii) “the Court
should assess the reasonableness of the Backstop [Fees] by measuring it against the
‘uncommitted portion’ of the backstopped offering.” Id. at 46. This Court applied the standards
under sections 363 and 503 of the Bankruptcy Code and rejected those arguments, finding that
“the Commitment Creditors are assuming the risk that they will be called upon to purchase the
entire $3.669 billion in securities,” that “the Commitment Creditors are subject to meaningful
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risk on the entire portion of the rights offering they are backstopping,” and – on the basis of these
and other findings – that “the Backstop [Fee] is reasonable.” Id. at 48, 51, 85. The A&P Ad Hoc
Group is raising the same arguments in support of this aspect of its objection to confirmation.
Whether a payment is “reasonable” depends on the “facts and circumstances of the
payments,” and takes account of, among other things, creditor support and whether the payments
are “market.” See In re Journal Register Co., 407 B.R. 520, 537-38 (Bankr. S.D.N.Y. 2009). In
assessing whether the Debtors have demonstrated that the Plan complies with section 1129(a)(4),
the Court will apply the same standards under section 363(b) that it applied in approving the
Backstop Fees as reasonable. The A&P Ad Hoc Group did not cite to a single case to support
their argument that the Backstop Fees at issue should be analyzed for reasonableness under
section 1129(a)(4) of the Bankruptcy Code.77 The Court finds no basis for revisiting its findings
and conclusions set forth in the Backstop Opinion. The Backstop Fees are reasonable under
section 1129(a)(4) and support confirmation of the Plan.78
The A&P Ad Hoc Group contends that the Plan was not proposed in good faith, in
violation of section 1129(a)(3) of the Bankruptcy Code, because the Debtors, under pressure
from the Commitment Creditors, have engaged in “vote buying” to secure the Commitment
Creditors’ vote to accept the Plan. See A&P Ad Hoc Group Obj. ¶¶ 41-42; see also id. ¶¶ 1, 7,
77 	Leiman v. Guttman, 336 U.S. 1, 69 S. Ct. 371 (1949), is clearly inapplicable here. The question at issue in
Leiman was whether the Supreme Court of New York had jurisdiction over an action to recover for legal services
that were not compensable out of the Debtor’s estate. Id. at 4. The court held that Section 221(4) places under the
control of the bankruptcy judge “all payments made or promised . . . by the debtor.” Id. at 5 (internal quotation
marks omitted). Rather than supporting the argument that the Backstop Fees should be analyzed under Section
1129(a)(4), Leiman only supports the narrow holding that it is the realm of the bankruptcy court, rather than a state
court, to evaluate and approve any fees paid in connection with a bankruptcy proceeding – a point of law on which
there is no disagreement in this case.
78 	As part of the Backstop Opinion, the Court approved the reimbursement of fees to the Parent GUC Ad Hoc
Group, the majority shareholders, and their professionals and advisors under section 503(b) of the Bankruptcy Code.
See Backstop Opinion at 57-58. The Court will not revisit that determination herein. See In re Adelphia Commc’ns.
Corp., 441 B.R. 6, 12 (Bankr. S.D.N.Y. 2010) (“[T]he applicant need only satisfy section 503(b) requirements.
There are no other provisions of the Code that authorize payment of fees of this character as expressly.”).
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26, 34. They made the same argument in objecting to the Backstop Motion. They contended that
the Debtors “settled for an unreasonable deal with the Commitment Creditors which vastly
overcompensates them with special treatment, generous fees, and steep discounts to divert
money to the Debtors’ controlling shareholders and procure votes by the Commitment Creditors
in favor of the Plan.” Backstop Opinion at 31. They urged “that the Debtors blindly accepted all
of their terms in an effort to gain their support for the Plan.” Id. at 36. The Court found no merit
to those arguments. Rather, the Court found that the Plan negotiations were conducted in “good
faith” and unfolded pursuant to a “vigorous, hard-fought and lengthy” mediation process
overseen by the Mediator. Id. at 33-34, 80. In sum, the Court was “satisfied that the evidence
demonstrates that the Debtors engaged in arm’s-length negotiations with the Commitment
Creditors and employed a fair and reasonable process in negotiating and executing the Backstop
Agreements.” Id. at 37; see also id. at 81 (“[T]he Debtors followed a fair process both internally
and externally in seeking sources of capital and, ultimately, negotiating the terms of the RSA and
Backstop Agreements, with the assistance of the Mediator.”). The Court adheres to those rulings
herein.
All bankruptcy plans are the product of formal and informal settlements. In that context,
without more, a creditor’s exercise of leverage to obtain concessions in plan negotiations is not
grounds for finding bad faith under section 1129(a)(3) of the Bankruptcy Code. See In re
Chemtura Corp., 439 B.R. 561, 609 (Bankr. S.D.N.Y. 2010) (“As all settlements require
compromise on both sides, the fact that the Debtors were willing to provide concessions to
garner support for their low-leverage plan does not preclude a finding of good faith.”); In re
AbitibiBowater Inc., No. 09–11296(KJC), 2010 WL 4823839, at *4, *8 (Bankr. D. Del. Nov. 22,
2010) (rejecting good faith objection, noting “[o]f course, plan negotiations among the various
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constituencies involved the making of concessions and agreements to achieve the level of
consensus likely to result in the overwhelming creditor support attained here”). Here, the Debtors
engaged in good faith, arm’s-length negotiations overseen by the Mediator. The A&P Ad Hoc
Group has failed to demonstrate that the Debtors engaged in “vote buying” or that the Plan
otherwise was filed in bad faith.
To summarize, the Court finds no merit to the A&P Ad Hoc Group’s contentions that (i)
the Plan fails to meet the requirements of section 1129(a)(1) because the Debtors’ treatment of
General Unsecured Class 5 Claims violates section 1123(a)(4) of the Bankruptcy Code; (ii) the
Plan violates section 1129(a)(3) of the Bankruptcy Code because it provides economics to the
Commitment Creditors that amount to impermissible “vote buying”; and (iii) the Plan calls for
the payment of an excessive and unreasonable Backstop Fees to the Commitment Creditors in
violation of 1129(a)(4). The Court overrules those objections to confirmation. The Court also
overrules as moot, the A&P Ad Hoc Group’s objection that the Plan may violate the absolute
priory rule under section 1129(b)(2) of the Bankruptcy Code. Each impaired class of creditors
voted to accept the Plan. Accordingly, since the Plan satisfies section 1129(a)(8) of the
Bankruptcy Code, the cramdown provisions are not applicable. See 11 U.S.C. § 1129(b)(2).
Finally, the Court will address the A&P Ad Hoc Group’s contentions that the Corporate
Incentive Plan established under the Plan violates section 503(c) of the Bankruptcy Code, and
that the Non-Debtor Releases and Exculpation Clause in the Plan violate the Bankruptcy Code in
conjunction with its discussion of the U.S. Trustee’s Plan objections.
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The U.S. Trustee Objection
The Corporate Incentive Plan
The Backstop Agreements call for the Reorganized Debtors to implement a post-
Effective Date employee incentive plan. See Commitment Creditors Backstop Agreement,
Schedule 3 (Terms of Corporate Incentive Plan); Backstop Shareholders Backstop Agreement,
Ex. C (Terms of Corporate Incentive Plan). Further, the RSA states that:
The Debtors’ management will be able to participate in a Management Incentive
Plan the terms of which shall be agreed by the Debtors and the Commitment
Parties at the time of the execution of the Backstop Agreements and which shall
be consummated and implemented on the Effective Date.
RSA, Ex. A (Restructuring Term Sheet) at 13. It further provides that:
At the time of the execution of the Backstop Agreements, the Debtors will seek to
amend and assume up to approximately 40 executives’ existing employment
agreements, which amended agreements shall include management protection
provisions (the “Management Protection Provisions”) in the amount of up to
$35mm in the aggregate.
Id. Through section 5.3 of the Plan, the Debtors seek to give effect to those commitments by
obtaining authorization to implement a Corporate Incentive Plan, Management Protection
Provisions and Short Term Cash Incentives, as follows:
Certain Debtors’ employees will be able to participate in the Corporate Incentive
Plan the terms of which shall be consistent with those set forth in the term sheet
attached as Schedule 3 to the Commitment Creditors Backstop Agreement and
Exhibit C to the Backstop Shareholders Backstop Agreement and which shall be
allocated and implemented post-Effective Date by the [New] Board.
As set forth in that term sheet, the Debtors will seek to amend and assume up to
approximately forty (40) executives’ existing employment agreements, which
amended agreements shall include management protection provisions (the
“Management Protection Provisions”) in the amount of no more than $35 million
in the aggregate on terms acceptable to the Commitment Creditors and the
Backstop Shareholders. The program implementing the Management Protection
Provisions shall include a short-term cash incentive plan in the aggregate amount
of $12 million, which shall be deemed earned as of the Effective Date. For the
avoidance of doubt, any amounts paid pursuant to such short-term cash incentive
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plan shall be credited in full against any amounts that may subsequently become
due and payable pursuant to the program implementing the Management
Protection Provisions.
Plan § 5.3. The Reorganized Debtors will provide those benefits to its officers and employees,
after the Effective Date. The Debtors address the terms of the Corporate Incentive Plan (the
“CIP”),79 Management Protections and Short Term Cash Incentives in the Corporate Incentive
Plan Term Sheet (the “CIP Term Sheet”) annexed as Exhibit H to the First Plan Supplement.80 In
part, the CIP Term Sheet states:
CIP to be equivalent to 2.5% of fully-diluted, fully-converted post-reorg shares.
Number of synthetic shares granted based on fully-diluted, fully-converted post-
reorg shares.
CIP to be implemented post-Effective Date by the board of directors to be elected
post-Effective Date in accordance with the Shareholders’ Agreement (as defined
in the Plan) (the “New Board”).
79 	Under the Plan, the term “CIP” is defined as:
[T]he employee incentive program to be established and implemented with respect to the
Reorganized Debtors post-Effective Date, on the terms provided in Schedule 3 and Exhibit C, as
applicable, to the Backstop Agreements (subject to the approval of the existing board of directors
of LATAM Parent) the material terms of which will be filed as an Exhibit to the Plan
Supplement, as acceptable to the Debtors, the Requisite Commitment Creditors and the Backstop
Shareholders.
Plan § 1.1 (definition of “CIP”). On April 12, 2022, the Debtors filed the Plan Supplement that includes the CIP
Term Sheet. See First Plan Supplement, Ex. H (CIP Term Sheet) [ECF No. 5014]. The term sheet is consistent with
the provisions contained in Schedule 3 in the Commitment Creditors Backstop Agreement. Compare CIP Term
Sheet, with Commitment Creditors Backstop Agreement, Schedule 3.
80 	As relevant, the CIP Term Sheet calls for:
[The] Management Protection Plan to be implemented consistent with the Restructuring Plan
Term Sheet (Exhibit A) to the Restructuring Support Agreement and Plan and subject to review
and comment by the Backstop Parties’ Advisors and good faith consideration of such comments
by the Company, as provided for in the Backstop Commitment Agreement.
The Management Protection Plan, as previously agreed in the Restructuring Plan Term Sheet
(Exhibit A) to the Restructuring Support Agreement, shall include a short-term cash incentive plan
in the aggregate amount of $12 million, which shall be deemed earned as of the Effective Date.
For the avoidance of doubt, any amounts paid pursuant to such short-term cash incentive plan
shall be credited in full against any amounts that may subsequently become due and payable
pursuant to the Management Protection Plan.
CIP Term Sheet at 2.
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Subsequent awards will be determined by the New Board, in its sole discretion.
The New Board shall determine individual grants for Effective Date awards under
the CIP, consistent with the terms provided for herein.
Compensation consultant selected by and acceptable to the Backstop Shareholders
and the Parent GUC Ad Hoc Group shall be retained pre-Effective Date to advise
the New Board, including on performance vesting criteria.
CIP Term Sheet at 1. The term sheet identifies the following three groups as eligible to receive
awards under the CIP:
“Senior Executives” consisting of all members of the “Global Executive Meeting”
(the “GEM Group”), which consists of the CEO, Vice Presidents and Directors.
The Executive Committee (“ExCom”) is a subset of the GEM Group and consists
of all Vice Presidents and one Director, each of whom reports directly to the
CEO.
“Other Executives” consisting of any Senior Managers that are not considered
Senior Executives (i.e., Senior Managers that do not directly report to the ExCom
Members), as well as Managers and Junior Managers.
“Other Employees” consisting of current employees that (i) were employees of
the company in 2020, (ii) have not been furloughed and re-hired and (iii) remain
employed by the company as of the vesting date for any CIP awards.
Id. at 1-2. Only the awards under the CIP provided for the Senior Executives are subject to
dispute. The CIP Term Sheet describes those awards, as follows:
Awards to be in the form of phantom (synthetic) shares to be awarded pursuant to
a contract and paid in cash.
Vesting dates shall occur at 8, 12, 24, 36 and 42 months post-Effective Date
consistent with the terms herein.
Awards vesting at 8 months and 12 months post – Effective Date will fully cover
the Management Protection Plan amount.
Id. at 1. The CIP Term Sheet includes a chart that discloses that for the first twelve months post-
Effective Date, payments under the CIP to Senior Executives’ awards are tied only to the
retention of those executives. Id. After twelve months, those payments are tied to both retention
(28% of the payment) and performance (72% of the payment), based on metrics to be determined
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and approved by the New Board and the compensation consultant selected by and acceptable to
the Backstop Shareholders and the Parent GUC Ad Hoc Group. Id.
A condition to plan confirmation under section 1129(a)(1) of the Bankruptcy Code is that
the Court find that the plan “complies with the applicable provisions of [the Bankruptcy Code].”
11 U.S.C. § 1129(a)(1). With certain irrelevant exceptions, chapters 1, 3 and 5 of the Bankruptcy
Code apply in a case under chapter 11 of the Bankruptcy Code. See 11 U.S.C. § 103(a). The
A&P Ad Hoc Group and U.S. Trustee contend that the Plan fails to satisfy section 1129(a)(1)
because the Debtors have not sought approval of the CIP under section 503(c) of the Bankruptcy
Code and the CIP does not comply with section 503 of the Bankruptcy Code. U.S. Trustee Obj.
at 18; see also A&P Ad Hoc Group Obj. ¶ 46 (“Rather than seek approval of these incentive
awards through the applicable sections of the Bankruptcy Code governing these types of
payments, the Debtors seek approval through confirmation of the Plan without providing the
legal basis for approval thereof.”)
Section 503(c)(1) prohibits the allowance and payment of sums to “an insider . . . for the
purpose of inducing such person to remain” with the business “absent a finding by the court
based on the evidence in the record” that (1) the payment is “essential” to the retention of the
individual “because the individual has a bona fide job offer from another business at the same or
greater rate of compensation;” and (2) the services of that individual are “essential to the survival
of the debtor’s business.” 11 U.S.C. § 503(c)(1).81 For these purposes, and as relevant herein, the
81 	Section 503(c)(1) of the Bankruptcy Code states, as follows:
Notwithstanding subsection (b), there shall neither be allowed, nor paid –
(1) 	a transfer made to, or an obligation incurred for the benefit of, an insider of the debtor for
the purpose of inducing such person to remain with the debtors’ business, absent a
finding by the court based on evidence in the record that
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term “insider” includes a director, officer, or person in control of the Debtors, or a relative of any
such person. 11 U.S.C. § 101(31).82 There is no dispute that the Senior Executives are insiders
for purposes of sections 503(c) and 101(31) of the Bankruptcy Code.
(A) 	the transfer or obligation is essential to retention of the person because the
individual has a bona fide job offer from another business at the same or greater
rate of compensation;
(B) 	the services provided by the person are essential to the survival of the business;
and
(C) 	either –
(i) the amount of the transfer made to, or obligation incurred for the benefit of,
the person is not greater than an amount equal to 10 times the amount of the mean
transfer or obligation of a similar kind given to nonmanagement employees for any
purpose during the calendar year in which the transfer is made or the obligation is
incurred; or
(ii) if no such similar transfers were made to, or obligations were incurred for the
benefit of, such nonmanagement employees during such calendar year, the amount of
the transfer or obligation is not greater than an amount equal to 25 percent of the
amount of any similar transfer or obligation made to or incurred for the benefit of
such insider for any purpose during the calendar year before the year in which such
transfer is made or obligation is incurred; . . .
11 U.S.C. § 503(c)(1).
82 	As relevant section 101(31) of the Bankruptcy Code states:
The term “insider” includes—
* 	* 	*
(B) if the debtor is a corporation--
(i) director of the debtor;
(ii) officer of the debtor;
(iii) person in control of the debtor;
(iv) partnership in which the debtor is a general partner;
(v) general partner of the debtor; or
(vi) relative of a general partner, director, officer, or person in control of the debtor
11 U.S.C. § 101(31).
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Congress added section 503(c) to the Bankruptcy Code to “eradicate the notion that
executives were entitled to bonuses simply for staying with the Company through the bankruptcy
process.” In re Global Home Prods., LLC, 369 B.R. 778, 783–84 (Bankr. D. Del. 2007). In
enacting the section, Congress sought “to limit the scope of key employee retention plans and
other programs providing incentives to management of the debtor as a means of inducing
management to remain employed by the debtor.” In re Borders Group, Inc., 453 B.R. 459, 470
(Bankr. S.D.N.Y. 2011) (internal quotations and citations omitted). Section 503(c)(1) “applies to
those employee retention provisions that are essentially ‘pay to stay’ key employee retention
programs.” In re Dana Corp., 358 B.R. 567, 571 (Bankr. S.D.N.Y. 2006); see also In re Dana
Corp. 351 B.R. 96, 102 (Bankr S.D.N.Y. 2006) (“Without tying this portion of the bonus to
anything other than staying with the company until the Effective Date, this Court cannot
categorize a bonus of this size and form as an incentive bonus. Using a familiar fowl
analogy, this compensation scheme walks, talks and is a retention bonus.”) (footnote omitted). In
the twelve months after the Effective Date, the Senior Executives will be eligible to receive two
payments under the CIP–both of which are based solely on those Senior Executives remaining in
the Debtors’ employ. See CIP Term Sheet at 1. For that reason, the A&P Ad Hoc Group and
U.S. Trustee describe the CIP as essentially a “pay to stay” program that runs afoul of section
503(c) of the Bankruptcy Code. See A&P Ad Hoc Group Obj. ¶ 50 (“As the awards are not tied
‘to anything other than staying with the company,’ the payments under the Corporate Incentive
Plan are retentive.”); U.S. Trustee Obj. at 18 (describing the CIP as “partially retentive”). They
maintain that the Debtors have failed to demonstrate that the CIP meets the standards in section
503(c)(1) and, as such, that the Court cannot approve it.83 See A&P Ad Hoc Group Obj. ¶ 44
83 	As relevant, the proposed Confirmation Order states, as follows: “The documents contained in the Plan
Supplement (including, without limitation, . . . the Corporate Incentive Plan Term Sheet, . . . and the Shareholders’
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(“The Debtors have not met their burden of demonstrating that the Corporate Incentive Plan
complies with the requirements [of section 503(c)(1)] of the Bankruptcy Code”); see also U.S.
Trustee Obj. at 17-18 (“[the Plan] makes no attempt to establish that the requirements of Section
503(c)(1) have been met.”).
Section 503 of the Bankruptcy Code governs the allowance of administrative expense
claims. See 11 U.S.C. § 503. “The policy behind giving priority to administrative expenses in
chapter 11 proceedings is to encourage creditors to supply necessary resources to debtors post-
petition.” In re Climax Chem. Co., 167 B.R. 665, 667 (Bankr. D.N.M. 1994). Courts have
established strict criteria for determining whether a claim should be afforded an administrative
priority. See In re Molnar Bros., 200 B.R. 555, 558 (Bankr. D.N.J. 1996) (noting that allowances
for administrative expenses are “narrowly construed for [the] proper protection of other
creditors.”); In re Grant Broad. of Phila., Inc., 71 B.R. 891, 897–98 (Bankr. E.D. Pa. 1987)
(“administrative claims should be narrowly construed to minimize prioritizing of a debtor’s
scarce resources to certain favored creditors”). Accordingly, section 503 has “two overriding
policy objectives: (i) to preserve the value of the estate for the benefit of its creditors and (ii) to
prevent the unjust enrichment of the estate at the expense of its creditors.” In re Journal Register
Co., 407 B.R. 520, 535 (Bankr.S.D.N.Y.2009) (citations omitted). “This dual objective is
embodied in the ‘preserving the estate’ language of the statute and requires that allowed
administrative claims arise from transactions with the estate.” Id.
In Journal Register, the debtors proposed a reorganization plan that established an
incentive plan to take effect after the plan’s effective date (the “JR Incentive Plan”) for the
Agreement) are integral to the Plan and are approved by the Bankruptcy Court.” See Notice of Filing of Second
Revised Proposed Order (I) Confirming Debtors' Joint Plan of Reorganization of LATAM Airlines Group S.A. et al.
Under Chapter 11 of the Bankruptcy Code and (II) Granting Related Relief, Ex. A (proposed Confirmation Order)
[ECF No. 5502].
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benefit of certain employees of the reorganized debtors and pay them bonuses if they achieved
certain goals that the debtors and a group of consenting creditors agreed to in a plan support
agreement. Id. at 527. Certain creditors objected to plan confirmation on the grounds that the JR
Incentive Plan violated section 503(c) and, as such, the Plan failed to satisfy section 1129(a)(1)
of the Bankruptcy Code. Id. at 529. The court overruled the objection. It found that the Debtor
did not seek allowance of the payments under the JR Incentive Plan as administrative expenses
under section 503 of the Bankruptcy Code, and, in any event, the payment did not qualify as
administrative expenses. It reasoned that “[t]he bonuses payable under the [JR] Incentive Plan
are not being paid to preserve the value of the estate or to prevent unjust enrichment of the estate,
as they are being paid subsequent to confirmation of the Plan and as a result of the confirmation
order itself.” Id. at 535 (citation omitted).
Like the JR Incentive Plan at issue in Journal Register, the CIP is a post-Effective Date
employee incentive program, which will be established pursuant to the Plan and implemented by
the New Board, for the benefit of the Reorganized Debtors. Although certain expected terms of
the CIP are set forth in the CIP Term Sheet, including the contours of the awards the New Board
(not the Debtors) would have the power to grant to certain employees (such awards, “CIP
Grants”), the terms of the CIP will be determined by the New Board. 84 See CIP Term Sheet at 1.
84 	The U.S. Trustee explained his position on corporate incentive plans at the hearing on May 20, 2022, stating –
[W]e’ve made it clear to many debtors that if they wanted to–that any sort of corp [sic] incentive
plan that a debtor or the reorganized debtor would want to implement with respect to any of the
officers and directors and so forth could easily be done by the reorganized debtors’ board. That
what’s an issue here is the attempt to have the Bankruptcy Court approve these corporate
incentive plans . . . where payment will occur post-petition. And [the Debtors] don't want the
post-petition reorganized debtors board to have the final say on the matter. . . What’s being
proposed here is somewhat of a hybrid. Rather than having specific amounts designated for
specific employees, what's being proposed under the plan . . . is essentially a carve-out or a pot . .
. So they’re attempting to sort of straddle the requirements by indicating we want to lock in the
amount.
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The New Board, acting for the benefit of the Reorganized Debtors, not the Debtors, will need to
consider the CIP and determine all individual CIP Grants. See id. The CIP will not exist prior to
the Effective Date, and no CIP Grants will be considered, let alone issued, until after the
Effective Date. By definition, the CIP Grants cannot qualify as administrative expenses. See In
re Bethlehem Steel Corp., 479 F.3d 167, 172 (2d Cir. 2007) (“[A]n expense is administrative
only if it arises out of a transaction between the creditor and the bankrupt’s trustee or debtor in
possession, and only to the extent that the consideration supporting the claimant’s right to
payment was both supplied to and beneficial to the debtor-in-possession in the operation of the
business.”) (internal quotation marks and citation omitted). Section 503 does not apply to the CIP
and the CIP Grants.85 The CIP does not violate section 503 and, as such, the Plan does not run
afoul of section 1129(a)(1). The Court overrules the objections to the CIP.
May 20, 2022 Hr’g Tr. [ECF No. 5513] (the “May 20, 2022 Hr’g Tr. – Public Session”) at 129:13-130:20
(Masumoto).
85 	In reaching this conclusion, the Court finds that the A&P Ad Hoc Group and U.S. Trustee misplace their
reliance on In re AMR Corp., 497 B.R. 690 (Bankr. S.D.N.Y. 2013); In re Dana Corp., 351 B.R. 96 (Bankr.
S.D.N.Y. 2006) and In re TCI 2 Holdings, L.L.C., 428 B.R. 117 (Bankr. D.N.J. 2010). Those cases do not involve
incentive/retention programs to be implemented after the effective date of a confirmed chapter 11 plan for the
benefit of the reorganized debtor. In In re AMR Corp., as part of its reorganization plan, the debtor sought approval
of a letter agreement by which the debtor’s CEO, whose employment would be terminated on the plan’s effective
date, would receive a $20 million severance payment. 497 B.R. at 693. The approval of that payment by the debtor,
without any action by the reorganized debtor, was a condition precedent to the plan’s effectiveness. Id. Here, the
Plan does not contain a condition precedent that the CIP will be implemented and administered by the Debtors, or
the CIP Grants will be issued or paid prior to the Effective Date.
In In re Dana Corp., the Debtor filed a motion pursuant to sections 105, 363(b) and 365 of the Bankruptcy
Code seeking approval of a proposed compensation plan for the Debtors’ President and CEO, and five other
executives. 351 B.R. at 98. The compensation plan was to take effect immediately upon receipt of court approval
and all of the payments called for under the plan, save one, were payable prior to the debtors’ emergence from
bankruptcy. Id. at 99. The completion bonus payable under the plan included an amount payable to the executives
upon the debtors’ emergence from chapter 11. Id. The issue before the court was whether the compensation plan was
subject to the limitations of section 503(c) of the Bankruptcy Code or could be evaluated pursuant to the business
judgment test under section 363(b). The court held that the plan was subject to section 503(c) and denied the motion.
Id. at 103. Dana is clearly distinguishable. The CIP does not contemplate any payments prior to emergence from
chapter 11. Moreover, the Dana court did not consider whether post-effective date awards could qualify as
administrative expenses.
In In re TCI 2 Holdings, LLC, the plan proponents sought approval of a severance package for certain officers
and directors where the obligations under the package would be incurred and paid by the reorganized debtors after
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Section 1129(a)(4) of the Bankruptcy Code, states that
Any payment made or to be made by the proponent, by the debtor, or by a person
issuing securities or acquiring property under the plan, for services or for costs
and expenses in or in connection with the case, or in connection with the plan and
incident to the case, has been approved by, or is subject to the approval of, the
court as reasonable.
11 U.S.C. § 1129(a)(4). As such, it provides a mechanism for judicial review of payments made
or to be made by the debtor in connection with a reorganization plan. See In re Future Energy
Corp., 83 B.R. 470, 488 (Bankr. S.D. Ohio 1988) (“Section 1129(a)(4) is designed to insure
compliance with the policies of the Code that (1) the bankruptcy court should police the
awarding of fees in title 11 cases and (2) holders of claims and interests should have the benefit
of such information as might affect the claimants’ decision to accept or reject the plan.”). In
Journal Register, the Court noted that “[b]y including the [JR Incentive Plan] in their Plan of
Reorganization, the Debtors have subjected the Incentive Plan to the heightened disclosure,
notice, and hearing requirements of the Plan confirmation process, and they have given the
affected parties the opportunity to vote on it.” 407 B.R. at 536–37. Judge Gropper found section
1129(a)(4) to be “directly applicable” to the post-effective date bonuses payable under the JR
Incentive Plan because they were being made pursuant to the plan and because the statute is
applicable to a “broad array of payments.” Id. at 537 (citations omitted). In considering whether
the payments under the incentive plan were reasonable, Judge Gropper found that “the issue of
reasonableness will clearly vary from case to case and, among other things, will hinge to some
degree upon who makes the payments at issue, who receives those payments, and whether the
the effective date of the plan. 428 B.R. 117. The U.S. Trustee objected to the severance package on the grounds that
it violated section 503(c) of the Bankruptcy Code. The plan proponents contended that the court should overrule the
objection because any severance obligation would be incurred and paid by the reorganized debtors after the effective
date of the plan, making section 503(c) inapplicable. Id. at 172-73. Without accounting for the source and timing of
the severance payment, the court summarily sustained the objection. Id.
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payments are made from assets of the estate.” Id. (quoting Mabey v. Southwestern Elec. Power
Co. (In re Cajun Elec. Power Coop., Inc.), 150 F.3d 503, 517 (5th Cir.1998), cert. denied, 526
U.S. 1144 (1999)). In approving the payments as reasonable under section 1124(a)(4), Judge
Gropper noted (i) that incentive payments were to be paid from assets owned by the secured
creditors – not the Reorganized Debtors, (ii) the disclosure statement and plan fully disclosed the
incentive plan, (iii) the creditors’ committee endorsed the incentive plan as reasonable, and (iv)
the Debtors' chief operating officer, who was an experienced restructuring professional, testified
without contradiction that the incentive plan was reasonable. Id. at 538.
The U.S. Trustee asserts that there is insufficient information to assess whether the
payments under the CIP are reasonable. U.S. Trustee Obj. at 23. The payments under the CIP
will be made after the Effective Date of the Plan from assets owned by the Reorganized Debtors.
The Debtors fully disclosed all aspects of the CIP in the Disclosure Statement,86 and in the Plan
86 	As relevant, the Disclosure Statement provides, as follows:
Backstop Agreements also provide for the terms of a [CIP] that the Debtors believe are consistent
with market terms for a company the size and complexity of LATAM and the markets in which it
operates. A summary of the CIP terms is set forth in a term sheet attached as Exhibit H to the
Plan. Under the proposed CIP currently set forth in the Backstop Agreements and which the
Debtors are seeking to have approved by the Court, employees will be eligible to receive either
cash or “synthetic shares”—cash awards equivalent to the value of shares in the Reorganized
Debtors. The CIP will be equivalent to dilution of 2.5% of the equity of the Reorganized Debtors.
For synthetic share awards made to senior executives during the first year following the Debtors’
emergence from bankruptcy, 100% of the contemplated awards will be retention based.
Thereafter, awards under the CIP will, if approved by the Court, become increasingly more
performance based. The criteria for performance-based awards will be determined by the New
Board based on advice of compensation consultants that are being engaged to advise on such
criteria.
In addition, as set forth in Exhibit H to the Plan, the Debtors will seek to amend and assume up to
approximately forty (40) executives’ existing employment agreements, which amended
agreements shall include management protection provisions (the “Management Protection
Provisions”) in the amount of no more than $35 million in the aggregate on terms acceptable to the
Commitment Creditors and the Backstop Shareholders. The Management Protection Provisions
currently described in the Backstop Agreements include $12 million in a short-term cash incentive
plan that will be deemed fully earned as of the Effective Date.
Disclosure Statement at 60-61.
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and Plan Supplement. The Holders of General Unsecured Class 5 Claims had the opportunity to
factor the CIP and the CIP Grants thereunder into their decision to accept or reject the Plan. They
voted overwhelmingly to accept the Plan. Moreover, the CIP metrics will be determined by the
New Board but subject to the condition that the board consult with a compensation consultant
selected by and acceptable to the Backstop Shareholders and the Parent GUC Ad Hoc Group.
Moreover, there is no suggestion that CIP is not in line with the market for compensation of the
Senior Executives of similar companies. The Court finds that the Debtors have complied with
section 1129(a)(4) of the Bankruptcy Code.
The Non-Debtor Releases and Exculpation Provision
The Plan provides for the release and enjoinment of certain claims and causes of action
by the Debtors (the “Debtor Releases”) and by certain non-debtor third parties (the “Non-Debtor
Releases”) against a group of specified individuals and entities (the “Released Parties”). See Plan
§ 11.3.87 It also includes Exculpation and Limitation of Liability and Injunction clauses. See id.
§§ 10.6, 10.7. The Non-Debtor Releases are binding on the Holders of Claims against, and
Equity Interests in, the Debtors and the Reorganized Debtors who
(i) are entitled to vote to Accept or Reject this Plan and (x) vote to Accept this
Plan or (y) either Reject this Plan or abstain from voting and do not timely submit
87 	For these purposes, the “Released Parties” consist of
(i) each of the Debtor Released Parties, (ii) the Committee in its capacity as such, (iii) each of the
Backstop Parties in their capacity as such, (iv) each of the DIP Secured Parties in their capacity as
such, (v) the Eblen Group and CVL, each in their capacity as a party to the RSA and each of the
Backstop Shareholders in their capacity as such, (vi) each of the Commitment Creditors in their
capacity as such, (vii) each of the Prepetition Secured Parties in their capacities as such, (viii) the
W&C Creditor Group Parties in their capacities as such, (ix) each agent, lender, or secured party
under the Revised RCF Agreement, each in its capacity as such, (x) the Local Bond Trustee, in its
capacity as such, (xi) the Joining Local Bondholders, in their capacities as such, and (xii) with
respect to each of (ii)-(xi), such Person’s predecessors, successors, assigns and for each of the
foregoing, each of their present or former directors and officers, and any Person claiming by or
through them, members, partners, equity-holders, employees, representatives, advisors, attorneys,
notaries (pursuant to the laws of the United States and any other jurisdiction), auditors, agents and
professionals, in each case acting in such capacity, and any Person claiming by or through any of
them, for each of the foregoing in their capacity as such.
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a Ballot indicating their refusal to grant the releases in this paragraph (subject to
subparagraph (iv) hereof),
(ii) are presumed to have voted for this Plan under section 1126(f) of the
Bankruptcy Code and do not timely opt out of the releases in this paragraph as
provided for in the Notice of Non-Voting Status (as defined in the Disclosure
Statement Order),
(iii) exercise their preemptive rights to subscribe to either the ERO New Common
Stock or the New Convertible Notes and do not timely opt out of the releases set
forth in this paragraph in connection with the preemptive rights subscription
process or
(iv) elect to subscribe to New Convertible Notes Class C or New Local Notes
(irrespective of how such Holder votes on this Plan).
Id. § 11.3(b). It is well settled that, as a general proposition, creditors may consent to third-party
releases. See Deutsche Bank AG v. Metromedia Fiber Network, Inc. (In re Metromedia Fiber
Network, Inc.), 416 F.3d 136, 142 (2d Cir. 2005); see also In re Charter Commc'ns, 419 B.R.
221, 258 (Bankr. S.D.N.Y. 2009) (stating that consensual releases are permissible); In re
Adelphia Commc’ns Corp., 368 B.R. 140, 268 (Bankr. S.D.N.Y. 2007) (adopting the view that
third-party releases where the creditor consents, is permissible); In re Oneida Ltd., 351 B.R. 79,
94 (Bankr. S.D.N.Y. 2006) (granting third-party releases where the creditor affirmatively
Plan § 11.3(b); see also id. § 1.1 at 26-27 (definition of “Released Parties”). The term “Debtor Released Parties”
means “the Debtors and each of their Related Persons excluding members, partners or Holders of Equity Interests.”
See id. § 1.1 at 8 (definition of “Debtor Released Parties”).
87 For these purposes, a “Related Person” means
with respect to any Person, such Person’s predecessors, successors, assigns and present and former
subsidiaries and Affiliates (whether by operation of law or otherwise) and for each of the
foregoing: each of their present or former directors and officers, and any Person claiming by or
through them, members, partners, equity-holders, employees, representatives, present and former
advisors and attorneys, notaries (pursuant to the laws of the United States and any other
jurisdiction), auditors, agents and professionals, in each case acting in such capacity, and any
Person claiming by or through any of them.
Id. § 1.1 at 26.
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indicated their willingness to be bound by checking the box); In re XO Commc'ns, Inc., 330 B.R.
394, 437 (Bankr. S.D.N.Y. 2005) (noting that consensual third-party releases are permissible).
The U.S. Trustee and the A&P Ad Hoc Group contend that to consent to such a release,
the creditors and interest holders must affirmatively opt in to the release. See A&P Ad Hoc
Group Obj. ¶ 57; U.S. Trustee Obj. 7-9. 88 They argue that silence on the part of a creditor or
interest holder cannot be construed as consent to a release. U.S. Trustee Obj. at 9 (citing In re
SunEdison, 576 B.R. at 458). They say that the Court should not authorize the Non-Debtor
Releases because the Plan provides that creditors and interest holders will be bound by the Non-
Debtor Release if they remain “silent” by failing to opt out of the release. See id. at 8. However,
courts in this district routinely approve opt out release language in cases in which creditors and
interest holders have been provided with “a clear and prominent explanation of the [opt out]
procedure.” In re Avianca Holdings, S.A., 632 B.R. 124, 137 (Bankr. S.D.N.Y. 2021). That is
because, “[i]naction is action under appropriate circumstances. When someone is clearly and
squarely told if you fail to act your rights will be affected, that person is then given information
that puts them on notice that they need to do something or else. That’s not a trap.” Id. at 137
88 	As support for that proposition, the U.S. Trustee and A&P Ad Hoc Group rely on In re Chassix Holdings, Inc.,
533 B.R. 64 (Bankr. S.D.N.Y. 2015) and In re SunEdison, Inc., 576 B.R. 453 (Bankr. S.D.N.Y. 2017)). In those
cases, the reorganization plans provided for non-debtor releases that would be binding on unsecured creditors unless
they took affirmative action not to grant the release. In both cases, the debtors projected that unsecured creditors
would receive de minims distributions on account of their claims. The courts rejected the debtors’ contentions that
the non-debtor releases were consensual and enforceable. In substance, both courts reasoned that given the projected
meager recovery on account of the creditor claims under the plans, it was likely that unsecured creditors did not
focus on the fact that the plan called for them to take action not to grant the non-debtor releases and, in failing to act,
they were not consenting to the releases. For that reason, the Chassix court directed the debtor to modify the plan to
give unsecured creditors the right to opt into the non-debtor release, and the SunEdison court rejected the non-debtor
release. See In re Chassix Holdings, Inc., 533 B.R at 80 (the court required opt in elections largely due to the
miniscule recovery proposed under the plan, which encouraged a “higher-than-usual degree of inattentiveness or
inaction among affected creditors.”); In re SunEdison, Inc., 576 B.R. at 461 (noting that the unsecured creditors
received less than a 3% recovery, leading the court to assume that such “meager recoveries . . . may explain their
inaction without regard to the Release.”). Here, in contrast, releasing parties are receiving exponentially greater
recovery than those at issue in SunEdison and Chassix (indeed, full recovery for a large number of claims). See
Disclosure Statement § II.A. Moreover, the sufficiency of the Debtors’ opt out process is apparent from the more
than 250 opt outs the Debtors received.
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(quoting In re Cumulus Media Inc., No. 17-13381 (Bankr. S.D.N.Y. Feb. 1, 2018) (Tr. of Hr’g at
27–28) (Chapman, J)).
The Debtors have provided very clear and prominent notice and explanation of the Opt-
Out Procedures applicable to the Non-Debtor Releases. Article XI of the Plan governs the
“Effect of Plan Confirmation,” and section 11.3(b) contains the Non-Debtor Release language in
bold print. See Plan § 11.3(b). The Disclosure Statement includes a full discussion of the Debtor
and Non-Debtor Releases, as well as the Exculpation and Limitation of Liability and Injunction
clauses. See Disclosure Statement §§ I.B, I.F, XI.A-F. Moreover, in summarizing the terms of
the Plan at the outset of the document, the Disclosure Statement provides that –
The Plan also contains third-party releases. If you are eligible to vote on the
Plan and you (i) vote to accept the Plan or (ii) vote to reject the Plan or
abstain from voting on the Plan and do not affirmatively opt out of the
release provisions in the Plan, you will be deemed, as of the Effective Date, to
have conclusively, absolutely, unconditionally, irrevocably and forever
released, waived and discharged all claims and all causes of action (as set
forth in Section 11.3 the Plan and as permitted by applicable law) against the
Released Parties (as defined in the Plan), including third parties. See Section
XI herein. Holders of claims are urged to carefully review the release
provisions in Section 11.3 of the Plan as well as the opt-out procedures as
detailed in the forms of ballots.
Id. § I.B. In the Disclosure Statement Order, the Court approved the Debtors’ proposed
solicitation procedures, including the form of ballots (the “Ballots”) and of the form of the
Notice of Non-Voting Status to Holders of Unimpaired Claims Conclusively Presumed to Accept
the Plan (“Notice of Non-Voting Status”). The Debtors conspicuously disclosed the Non-Debtor
Releases in boldface type in the Ballots and the Notice of Non-Voting Status, together with
instructions on how to opt out of the Non-Debtor Releases and expressly advised of the
consequences of not doing so. Each of the Ballots for Classes 1, 5 and 7 and the Notice of Non-
Voting Status, provided creditors an opportunity to opt out of the Non-Debtor Releases. The
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Ballots and Notice of Non-Voting Status also include the exact language of the Debtor and Non-
Debtor Releases set forth in the Plan. See, e.g., Disclosure Statement Order, Ex. 3 (Form of
Beneficial Owner Ballot for General Unsecured Claims against LATAM Parent) at 11-13.89
Moreover, the Debtors offered claim and interest holders multiple options to effectuate their opt
out, both via physical ballot and via the Solicitation Agent’s online portal.90 The voluntary “opt
out” structure is routinely applied in chapter 11 cases in this and other districts.91 The Court
89 	The Ballots also provide that,
Pursuant to Section 11.3 of the Plan, you will be deemed to have conclusively, absolutely,
unconditionally, irrevocably and forever released and discharged all Claims and Causes of Action
(as set forth in the Plan and as permitted by applicable law), against the Released Parties (as
defined in the Plan) if you (a) vote to accept the Plan (whether or not you check the box in Item
3), (b) are presumed to have voted for the Plan under section 1126(f) of the Bankruptcy Code, or
(c) reject the Plan or abstain from voting to 9 accept or reject the Plan without checking the box
in Item 3 of the Ballot. You may check the box in Item 3 only if (a) you are entitled to opt out of
the Releases in Section 11.3 of the Plan and (b) you submit the Beneficial Owner Ballot and
either reject the Plan or abstain from voting to accept or reject the Plan.
See e.g., Disclosure Statement Order, Ex. 3 (Form of Beneficial Owner Ballot for General Unsecured Claims against
LATAM Parent) at 8-9. Each Ballot also explained, as follows:
PURSUANT TO THE PLAN, IF YOU RETURN A BALLOT THAT VOTES TO ACCEPT THE
PLAN, YOU WILL BE DEEMED, AS OF THE PLAN EFFECTIVE DATE, TO HAVE
CONCLUSIVELY, ABSOLUTELY, UNCONDITIONALLY, IRREVOCABLY AND
FOREVER RELEASED AND DISCHARGED ALL CLAIMS AND ALL CAUSES OF ACTION
(AS SET FORTH IN THE PLAN AND AS PERMITTED BY APPLICABLE LAW) AGAINST
THE RELEASED PARTIES (AS DEFINED IN THE PLAN). IF YOU RETURN A BALLOT
THAT VOTES TO REJECT OR ABSTAINS FROM VOTING ON THE PLAN AND DO NOT
AFFIRMATIVELY OPT OUT OF THE RELEASE PROVISIONS IN SECTION 11.3 OF THE
PLAN, YOU WILL BE DEEMED, AS OF THE EFFECTIVE DATE, TO HAVE
CONCLUSIVELY, ABSOLUTELY, UNCONDITIONALLY, IRREVOCABLY, AND
FOREVER RELEASED AND DISCHARGED ALL CLAIMS AND ALL CAUSES OF ACTION
(AS SET FORTH IN THE PLAN AND AS PERMITTED BY APPLICABLE LAW) AGAINST
THE RELEASED PARTIES (AS DEFINED IN THE PLAN).
See e.g., id. at 10.
90 	Disclosure Statement Order, Exs. 3, 4, 5 (form of the Ballots); id., Ex. 6 (Notice of Non-Voting Status); Ex. 16
(Form of Beneficial Owner Ballot for LATAM 2024/2026 Bond Claims Against LATAM Finance and LATAM
Parent); see also Order (A) Authorizing Service of Supplemental Solicitation Materials and (B) Scheduling Certain
Dates and Deadlines in Connection with Confirmation of Plan of Reorganization [ECF No. 5221], Ex. C (RCF
Ballots).
91 	See, e.g., In re China Fishery Grp. Ltd., Case No. 16-11895 (JLG), [ECF No. 2909] (Bankr. S.D.N.Y. Jan, 13,
2022) (confirming a plan with opt out third-party releases); In re Philippine Airlines, Inc., Case No. 21-11569 (SCC)
(Bankr. S.D.N.Y. Dec. 17, 2021) (same); In re Avianca Holdings S.A., Case No. 20-11133 (MG), [ECF No. 2300]
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overrules the A&P Ad Hoc Group’s and U.S. Trustee’s objection that an opt in rather than Opt-
Out Procedure must be followed for a consensual release to be effective. 92
The U.S. Trustee asserts that, assuming arguendo, that the creditors and equity holders
have consented to the Non-Debtor Releases, consent alone is not sufficient support to warrant
such releases. In Metromedia the Second Circuit set forth several circumstances in which courts
have approved third-party releases, namely, (1) the importance of the releases to the plan, (2)
whether the affected claims would be channeled to a settlement fund, (3) whether the bankruptcy
estates would receive substantial consideration for the releases, (4) whether the released claims
would impact the reorganization via indemnity or contribution, and (5) whether the plan
otherwise provided for the full payment of the released claims. In re Metromedia, 416 F.3d at
141-42. The U.S. Trustee contends that the Debtors must demonstrate that application of those or
similar factors supports that Non-Debtor Release. U.S. Trustee Obj. at 12. He asserts that the
Debtors have failed to show that each Released Party is entitled to obtain a Non-Debtor Release.
Id. at 12-13. He maintains that the definition of Released Parties in the Plan is unusually broad,
encompassing many creditor groups and equity holders not typically included in the definition.
(Bankr. S.D.N.Y. Nov. 2, 2021) (same); In re Stearns Holdings, LLC, Case No. 19-12226 (SCC), [ECF No. 459]
(Bankr. S.D.N.Y. Nov. 13, 2019) (same); In re Ditech Holding Corp., Case No. 19-10412 (JLG), [ECF No. 1404]
(Bankr. S.D.N.Y. Sept. 16, 2019) (same); In re Nine West Holdings, Inc., Case No. 18-10947 (SCC), [ECF No.
1308] (Bankr. S.D.N.Y. Feb. 27, 2019) (same); In re Tops Holding II Corp., Case No. 18-22279 (RDD), [ECF No.
765] (Bankr. S.D.N.Y. Nov. 9, 2018) (same); In re Cenveo, Inc. et al., Case No. 18-22178 (RDD), [ECF No. 685]
(Bankr. S.D.N.Y. Aug. 21, 2018) (same); In re BCBG Max Azria Global Holdings, LLC et al., Case No. 17-10466
(SCC), [ECF No. 591] (Bankr. S.D.N.Y. July 26, 2017) (same); In re Cumulus Media Inc., Case No. 17-13381
(SCC), [ECF No. 769] (Bankr. S.D.N.Y. May 10, 2018) (same); In re 21st Century Oncology Holdings, Inc., Case
No. 17-22770 (RDD) (Bankr. S.D.N.Y. Jan. 11, 2018) (same).
92 	The Non-Debtor Releases are consensual and apply only to those creditors and equity interest holders who
affirmatively decide not to opt out of the release. As such, the U.S. Trustee misplaces his reliance on In re Purdue
Pharma, L.P., 635 B.R. 26 (S.D.N.Y. 2021) as support for his objection. There, the reorganization plan incorporated
a broad, involuntary release of claims (including those predicated on fraud and willful misconduct) against non-
debtors facing extensive liability stemming from the opioid crisis. Id. at 36. In contrast to the creditors and equity
interest holders herein, the claimants in Purdue Pharma were afforded no opportunity to opt out of the releases. See
id. at 81 (noting the claims at issue were “being finally disposed of pursuant to the Plan . . . without the claimants’
consent and without any payment”). The holding of Purdue Pharma has no bearing on these Chapter 11 Cases.
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He says that although certain of the Released Parties may have made a substantial financial
contribution to the Plan, the Debtors have not shown that all of the Released Parties have done
so. In particular, he asserts that the Debtors’ officers and directors who simply performed their
duties because they were paid to do so, or because they were under a fiduciary obligation to do
so are not entitled to a release from claims of non-debtors. Id. at 13.
However, consideration of a non-debtor release is not “a matter of factors and prongs.”
Metromedia, 416 F.3d at 142. As noted, in Metromedia the Second Circuit identified “consent”
as sufficient grounds for approving a non-debtor release. Id.; see also In re Adelphia Commc’ns
Corp., 368 B.R. at 268 (observing that the Metromedia court “did not quarrel with” other courts’
approval of consensual non-debtor releases). Still, and in any event, application of the factors
cited in Metromedia show that the Debtors have met their burden of demonstrating that the
Released Parties are entitled to the Non-Debtor Release. The Plan is the culmination of two years
of effort by the Debtors, their management, directors and employees, and their advisors,
involving extensive negotiations with various stakeholders, including certain key creditor groups
and holders of Equity Interests. See Alfonsín Decl. ¶ 5.93 In connection with those negotiations,
the Released Parties agreed to provide substantial consideration to the Debtors’ estates and
contributions to the restructuring, including by:
 	providing billions of dollars in debtor-in-possession financing, providing
the Debtors with critical liquidity that facilitated the administration of the
Chapter 11 Cases and allowed the Debtors to continue their
value-maximizing operations throughout the pendency of the cases and in
the midst of an unprecedented, global pandemic, see id. ¶ 16;
 	signing the RSA and agreeing to support the Plan, including by voting
their respective claims and providing corporate approvals necessary to
93 	Debtors Tr. Ex. 22 (Decl. of Ramiro Alfonsín Balza in Supp. of the Debtors’ Proposed Plan of Reorganization
dated April 12, 2022) (the “Alfonsín Decl.”).
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effectuate the issuance of the Plan Securities, see id. ¶¶ 9, 10, 13, 16, 20-
21;
 	agreeing to backstop several billion dollars of Plan Securities, in order to
ensure that the Debtors will be able to raise the capital they need to fund
Plan distributions and emerge from the Chapter 11 Cases well capitalized,
see id. ¶¶ 8-10, 13, 16, 20;
 	waiving certain legal rights (including preemptive and corporate
governance rights under Chilean law) and, with respect to the Prepetition
Secured Parties, settling or waiving claims for default interest against the
Debtors, both of which are essential to the global compromise embodied
in the Plan, see id. ¶¶ 16, 20; and
 	with respect to the Holders of RCF Claims, committing to provide a
revolving credit facility to the Debtors post-emergence.
The Debtors assert and the Court agrees that these contributions were instrumental to the
Debtors’ ability to prosecute the Chapter 11 Cases in a manner that preserved value for their
estates, and in the formation and consummation of the Plan, which provides meaningful value to
the Debtors’ creditors. These contributions were also made by the individuals whose labor or
services furthered the Debtors’ reorganization. See Findings of Fact at 20-21, Ex. A at 21, In re
Trident Holding Co., LLC, Case No. 19-10384 (SHL) [ECF No. 928] (Bankr. S.D.N.Y Sept. 18,
2019) (approving third-party releases for parties who made a substantial contribution to the
reorganization, including the debtors’ officers, directors and employees); Findings of Fact at 20-
26, In re Millennium Lab Holdings II, LLC, Case No. 15-12284 (LSS) [ECF No. 195] (Bankr. D.
Del. Dec. 14, 2015) (same); In re Seaside Eng’g & Surveying, Inc., 780 F.3d 1070, 1079-80
(11th Cir. 2015) (same); In re Mercedes Homes, Inc., 431 B.R. 869, 881 (Bankr. S.D. Fla. 2009)
(same).94 Accordingly, the Court overrules the objections and approves the Non-Debtor
Releases.
94 	Additionally, certain of the Released Parties are owed indemnification and contribution by the Debtors under
the Backstop Agreements or the A&R DIP Credit Agreement. See Plan § 3.1(f). Releasing claims against these
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Section 11.6 of the Plan contains Exculpation and Limitation of Liability provisions. It
provides that on the Effective Date, the Exculpated Parties:
shall neither have nor incur any liability to any Holder of a Claim or Equity
Interest, the Debtors, the Reorganized Debtors, or any other party-in-interest, or
any of their Related Persons for any prepetition act taken or omitted to be taken in
connection with, related to or arising from authorizing, preparing for or filing the
Chapter 11 Cases or any postpetition act or omission in connection with, relating
to, or arising out of the Chapter 11 Cases, the formulation, negotiation, or
implementation of the Restructuring Support Agreement, Disclosure Statement,
the Disclosure Statement Supplement, this Plan, the solicitation of acceptances of
this Plan, the pursuit of confirmation of this Plan, the confirmation of this Plan,
the consummation of this Plan or the administration of this Plan, except for acts or
omissions that are the result of willful misconduct, gross negligence, fraud or
criminal acts . . . .
Plan § 11.6. For these purposes, the term “Exculpated Parties” means:
(i) each of the Debtors, non-Debtor Affiliates, Reorganized Debtors, and all of
their respective Affiliates, (ii) the Backstop Parties, in their capacity as such, (iii)
the DIP Secured Parties, in their capacity as such, (iv) the Commitment Creditors,
in their capacity as such, (v) the Backstop Shareholders, in their capacity as such,
(vi) the Eblen Group and CVL, each in their capacity as a party to the
Restructuring Support Agreement, (vii) the Prepetition Secured Parties, each in
their capacity as such, (viii) each agent, lender and secured party under the
Revised RCF Agreement, each in its capacity as such, (ix) the W&C Creditor
Group Parties, each in their capacity as parties to the Restructuring Support
Agreement, (x) the Joining Local Bondholders and the Local Bond Trustee, each
in its capacity as such, (xi) the Committee and each of the members of the
Committee in its capacity as such, and (xii) with respect to the foregoing Persons
in clauses (i)—(xi), each of their respective officers, directors, employees,
representatives, advisors, attorneys, notaries (pursuant to the laws of the United
States and any other jurisdiction), auditors, agents and professionals, in each case
acting in such capacity on or any time after the Petition Date, and any person
claiming by or through any of them but excluding any other Causes of Action
preserved by the Debtors.
Id.
Released Parties will therefore ensure the Debtors are not burdened with the costs of indemnification or
contribution, another basis for approving non-debtor releases. See Metromedia, 416 F.3d at 142.
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Exculpation provisions in chapter 11 plans are not uncommon and “generally are
permissible, so long as they are properly limited and not overly broad.” In re Nat'l Heritage
Found., Inc., 478 B.R. 216, 233 (Bankr. E.D. Va. 2012) (citing In re PWS Holding Corp., 228
F.3d 224, 246 (3d Cir. 2000)). Moreover, courts in this district routinely approve exculpations of
prepetition conduct that are tailored to the debtor’s reorganization, as the Exculpation Provision
is here. See In re Stearns Holdings, L.L.C., 607 B.R. 781, 790 (Bankr. S.D.N.Y. 2019). The U.S.
Trustee objects to the Exculpation clause on the grounds that the definition of “Exculpated
Party” is overly broad. U.S. Trustee Obj. at 13. He maintains that an exculpation clause must
be limited to estate fiduciaries like estate professionals, the committees and their members, and
the Debtors’ directors and officers who have served during the chapter 11 case and should not
be extended to cover third parties like creditors, shareholders, and their advisors. Id. He also
asserts that in addition to excepting willful misconduct, gross negligence, fraud, or criminal acts
(as it does), the Exculpation clause should except attorneys’ violations of New York Rules of
Professional Conduct (“NYRPC”). Id. He maintains that as drafted, the Plan runs afoul of the
NYRPC provision that restricts attorneys from making agreements limiting their liability to a
client for malpractice. See N.Y. Comp. Codes R. & Res. Tit. 22 § 1200.8 Rule 1.8(h)(1).
It is well settled that an exculpation clause approved at confirmation may exculpate
estate fiduciaries like a committee, its members, and estate professionals for their actions in the
bankruptcy case except where those actions amount to willful misconduct or gross negligence. In
re PWS Holding Corp., 228 F.3d at 246; see also In re Tribune Co., 464 B.R. at 126, 189 (Bankr.
D. Del. 2011); In re Washington Mut., Inc., 442 B.R. 314, 350 (Bankr. D. Del. 2011). The
Exculpation clause meets that standard. But that does not go far enough for purposes of these
cases. “Exculpation provisions are frequently included in chapter 11 plans, because stakeholders
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all too often blame others for failures to get the recoveries they desire; seek vengeance against
other parties; or simply wish to second guess the decisionmakers in the chapter 11 case.” In re
DBSD North America, Inc., 419 B.R. 178, 217 (Bankr. S.D.N.Y. 2009). Accordingly, in that
light,
a proper exculpation provision is a protection not only of court-supervised
fiduciaries, but also of court-supervised and court-approved transactions. If this
Court has approved a transaction as being in the best interests of the estate and
has authorized the transaction to proceed, then the parties to those transactions
should [] not be subject to claims that effectively seek to undermine or second-
guess this Court's determinations. In the absence of gross negligence or
intentional wrongdoing, parties should not be liable for doing things that the
Court authorized them to do and that the Court decided were reasonable things to
do.
In re Aegean Marine Petroleum Network, Inc., 599 B.R. 717, 721 (Bankr S.D.N.Y. 2019). The
Exculpated Parties who are not estate fiduciaries are entitled to benefit from a broad exculpation
provision. They have been actively involved in all aspects of these Chapter 11 Cases and have
made significant contributions to the success of these cases. In the absence of gross negligence or
intentional wrongdoing on their parts, the Court will extend the Exculpation clause to the
Exculpated Parties who are not estate fiduciaries, to bar claims against them as set forth in the
Exculpation clause, and based on the negotiation, execution, and implementation of agreements
and transactions that were approved by the Court. To that extent, the Court overrules the U.S.
Trustee’s objection to the breadth of the definition of Exculpated Parties. Finally, the Court finds
no merit to the U.S. Trustee’s request that the Court should carve out attorneys’ violations of
N.Y. Comp. Codes R. & Res. Tit. 22 § 1200.8 Rule 1.8(h)(1). That rule prohibits a lawyer from
making an agreement prospectively limiting the lawyer’s liability to a client for malpractice.
However, it has no bearing on the standard of care established in the Exculpation Provision.
Accordingly, the Court overrules the U.S. Trustee’s objection.
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The U.S. Trustee Supplemental Objection
On September 24, 2020, the Court entered an order (the “Bar Date Order”) establishing
December 18, 2020 at 4:00 p.m. prevailing Eastern Time as the last date and time for each
person or entity to file proofs of claim based on prepetition claims or on section 503(b)(9) of the
Bankruptcy Code (the “General Bar Date”).95 Additionally, the Bar Date Order establishes
separate Bar Dates for claims arising from the Debtors’ rejection of executory contracts and
unexpired leases and claims that Debtors have amended in their Schedules.
Beginning after the General Bar Date, the Debtors and their advisors implemented a
process to review and reconcile the many thousands of filed and scheduled claims (and
supporting materials) in these Chapter 11 Cases. See Reply to U.S. Trustee Suppl. Obj. ¶ 1. Part
of this process involved the Debtors and their creditors contacting each other to exchange
supporting materials and address questions or seek resolutions regarding a creditor’s claims. In a
subset of these cases, where the Debtors and creditors agreed with the amounts asserted in a
proof of claim, the parties entered into claim allowance agreements (the “Claim Allowance
Agreements”). Id. Beginning in late December 2021–which is prior to the entry of the Disclosure
Statement Order–the Debtors began to insert a Plan Support Provision in the Claim Allowance
Agreements with the Class 5 Claim Allowance Creditors. Id. ¶ 3. 96 Pursuant to that provision,
among other things, the creditor committed to vote in favor of the Plan. The typical Plan Support
Provision provides that:
Support of the Plan. Counterparty shall timely cast any and all votes in respect
of the Claim to vote in favor of acceptance of the Plan. Counterparty shall not
95 	See Order (I) Establishing Bar Dates for Filing Proofs of Claim, (II) Approving Proof of Claim Form, Bar Date
Notices, and Mailing and Publication Procedures, (III) Implementing Uniform Procedures Regarding 503(b)(9)
Claims, and (IV) Providing Certain Supplemental Relief [ECF No. 1106].
96 	A copy of a representative Claim Allowance Agreement is annexed as Ex. A at 1-2 to the U.S. Trustee
Supplemental Objection.
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oppose or object to approval of the Disclosure Statement and confirmation of the
Plan. To the extent the Counterparty sells or otherwise transfers any portion of its
interest in the Claim, including the right to vote on the Plan, such sale or transfer
agreement (or any similar agreement) shall include a provision binding the
purchaser or transferee, and any subsequent purchasers or transferees, to this
Agreement.
Id. ¶ 5. By early January 2022, the Debtors created a Claim Allowance Agreement Template that
included a Plan Support Provision, that they sent to Class 5 Claim Allowance Creditors as part of
the negotiation on the allowance of their claims. See id. ¶ 8.97 The U.S. Trustee contends that the
Debtors aggressively sought out those agreements from the Class 5 Claim Allowance Creditors
in an effort to ensure that they could satisfy the numerosity requirement under section 1126(c) of
the Bankruptcy Code for Class 5’s acceptance of the Plan. See U.S. Trustee Suppl. Obj. at 18.
The Debtors obtained at least forty-one Claim Allowance Agreements (with the Plan Support
Provision) from the Class 5 Claim Allowance Creditors covering ninety-five separate claims. Id.
at 13, 15. The Debtors did not seek Court authorization to enter into the Claim Allowance
Agreements or otherwise file the agreements with the Court. However, for each agreement, they
separately executed a Claim Allowance Stipulation (which did not include the Plan Support
Provision or mention the provision) and then sought Court approval of the stipulation. The
Debtors treat the Claim Allowance Agreements as consisting of the Debtors’ agreement to allow
the claims, and the claimants’ agreement to support the Plan. The Debtors explain that they
sought Court approval of the Claim Allowance Stipulation, because under the Bankruptcy Code
they must obtain such approval because they do not have the unilateral right to allow creditor
claims. See Reply to U.S. Trustee Suppl. Obj. ¶ 11. They say that they did not believe that they
needed to obtain Court authorization to enter into the Plan Support Provision because (i) they
97 	The prototype of the Claim Allowance Agreement Template is annexed as Ex. A at 3-4 to the U.S. Trustee
Supplemental Objection.
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“fully believed that these Plan Support Provision were agreed to with creditors who had every
intention of supporting the Plan,” and (ii) because they “never had any intention of seeking
specific performance” of the Plan Support Provision. Id. They also contend that they did not
intend to conceal the Plan Support Provision from the Committee, the U.S. Trustee, or the Court,
and that they believed, and still believe, that entry into the Plan Support Provision is entirely
proper, and accordingly did not think including these agreements on the docket was necessary.
Id. ¶¶ 11-13.
The Claim Allowance Agreements do not contain confidentiality provisions and in
January 2022, a third party provided a copy of one such agreement to counsel to the Committee.
On January 20, 2022, the Committee’s counsel sought informal discovery from the Debtors
including: (1) all documents and communications between the Debtors, or their advisors, and any
creditor seeking support for the Plan; (2) all documents and correspondence regarding any effort
to secure a creditor’s support of the plan, which the Committee referred to as the “Program”; (3)
all communications regarding the Program; and (4) a list of the creditors that the Debtors had
approached seeking support of the Program (the “Information Request”). Id. ¶ 16.98 The U.S.
Trustee joined in the Information Request. Id. At a chambers conference on February 8, 2022,
the Court ordered the Debtors to produce all signed agreements containing the Plan Support
Provision and external communications with counterparties regarding that provision. Id. ¶ 17.99
98 	See Supplement to the Objection of the Official Committee of Unsecured Creditors to the Debtors Motion to
Approve (I) the Adequacy of Information in the Disclosure Statement, (II) Solicitation and Voting Procedures, (III)
Forms of Ballots, Notices and Notice Procedures in Connection Therewith, and (IV) Certain Dates With Respect
Thereto, Exhibit B [ECF No. 4171].
99 	The Court did not direct the Debtors to produce other categories of documents, including internal correspondence,
correspondence with creditors who did sign Claim Allowance Agreements with a Plan Support Provision or a list of
creditors who were approached about potentially signing an agreement. Reply to U.S. Trustee Suppl. Obj. ¶ 17. The
Court indicated that, if after review of the ordered discovery, the Committee or U.S. Trustee wanted further discovery,
they could renew their requests.
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Over the next three months, the Debtors produced more than 2,300 documents spanning over
18,000 pages, the vast majority of which were produced by the beginning of April 2022. Id. ¶
18.100
In the wake of the disclosure of the Claim Allowance Agreements (with the Plan Support
Provision), and their receipt of the discovery requests, the Debtors, without conceding any
impropriety with respect to their position, took affirmative steps to disclaim any attempt to rely
on or enforce the Plan Support Provision. They did this in three ways.
First, the Debtors added language to the fifth revised Disclosure Statement [ECF
No. 4727] in which they advised that they would not enforce or compel compliance
with any provision in a Claim Allowance Agreement.101
Second, the Debtors filed and served on all counterparties to agreements containing
a Plan Support Provision a notice that expressly disclaimed the provision. 102
Third, all Claim Allowance Stipulations were entered (or re-entered) with language
stating that the counterparty was not bound by the Plan Support Provision.
100 	The Debtors assert that as ordered by the Court, these documents included all executed agreements with all
counterparties who entered into agreements with the Plan Support Provision as well as all external correspondence
with these counterparties concerning Claim Allowance Agreements. Id. ¶ 18. They say that they also produced
extensive, invoice-by-invoice financial back-up proving that each claim that was subject to the Claim Allowance
Agreements with a Plan Support Provision was reconciled in accordance with the Debtors’ books and records, down
to the cent. Id. They contend that parallel and subsequent to these productions, the Debtors continued to meet and
confer with both the Committee and U.S. Trustee, where they continued to request the documents and
communications that the Debtors say were the subject of the Information Request that the Court previously rejected.
Id. ¶ 19. The Debtors say that notwithstanding their belief that these documents and communications were irrelevant
to the legal issues at hand, they voluntarily produced an Excel document that served as the Debtors’ informal means
of tracking their outreach to claimants regarding Claim Allowance Agreements. Id.
101 	See Disclosure Statement § IV.L (“The Debtors have agreed that they will not enforce any provision in a ‘Claim
Allowance Agreement’ that would require a creditor to vote to accept the Plan”).
102 	See Notice Of Debtors’ Position Regarding Certain Claim Allowance Agreements [ECF No. 4752] (the “Plan
Support Notice”). The Plan Support Notice states:
PLEASE TAKE FURTHER NOTICE that any provisions in any Claim Allowance Agreements, or
any similar agreements between the Debtors and creditor counterparties, regarding a creditor
counterparty’s agreement to vote to accept the Plan shall not be binding on the creditor
counterparty, and the Debtors expressly disclaim any attempt to enforce or compel compliance
with respect thereto.
Plan Support Notice at 2.
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Id. ¶ 20. The Debtors report that of the ninety-five Allowed General Unsecured Class 5 Claims
originally subject to the Plan Support Provisions, only forty-five voted to support the Plan. Id.
Section 1125 of the Bankruptcy Code addresses matters relating to the solicitation of
votes to accept or reject a chapter 11 plan. Section 1125(b) states, in pertinent part, as follows:
An acceptance or rejection of a plan may not be solicited after the commencement
of the case under this title from a holder of a claim or interest with respect to such
claim or interest, unless, at the time of or before such solicitation, there is
transmitted to such holder the plan or a summary of the plan, and a written
disclosure statement approved, after notice and a hearing, by the court as
containing adequate information.
11 U.S.C. § 1125(b). This section is “designed to ‘discourage the undesirable practice of
soliciting acceptance or rejection at a time when creditors and stockholders were too ill-informed
to act capably in their own interests.’” In re Heritage Org., LLC, 376 B.R. 783, 794 (Bankr. N.D.
Tex. 2007) (quoting In re Clamp-All Corp., 233 B.R. 198, 208 (Bankr. D. Mass. 1999)). Section
1126 of the Bankruptcy Code governs the acceptance and rejection of chapter 11 plans. The
default rule under the Bankruptcy Code is that the votes of all holders of claims or interests
impaired by the plan are counted in determining whether the class of claims or interests has
accepted or rejected the plan. See 11 U.S.C. § 1126(d). Section 1126(e) provides an exception to
that rule. It authorizes the bankruptcy court to “designate” (i.e., disregard) the votes of “any
entity whose acceptance or rejection of such plan was not in good faith, or was not solicited or
procured in good faith or in accordance with the provisions of this title.” 11 U.S.C. § 1126(e).
In substance, the U.S. Trustee contends that in entering into the Claim Allowance
Agreements, the Debtors improperly solicited the Class 5 Claim Allowance Creditors’ votes for
their Plan. See U.S. Trustee Suppl. Obj. at 1-2. He contends that the Debtors “[i]mproperly
engaged in postpetition claims resolution process for the purpose of leveraging the claims
resolution process in order to improperly solicit votes for the Debtors’ Plan of Reorganization.”
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Id. at 1. To that end, he maintains that “the Debtor utilized this process to secure agreements with
certain creditors to vote in favor of the plan based on the Debtors’ agreement to allow the
creditor’s respective claim.” Id. at 1-2. Although the Debtors have waived their rights, if any, to
enforce the Plan Support Provisions in the agreements, the U.S. Trustee nonetheless contends
that the Debtors’ “clear violation” of section 1125(b) of the Bankruptcy Code provides grounds
for the Court to designate the votes of the Class 5 Claim Allowance Creditors pursuant to section
1126(e), and to deny confirmation of the Plan under section 1129(a)(2) of the Bankruptcy Code.
Id. at 18.
The Debtors deny that in entering into the Claim Allowance Agreements, they solicited
acceptances of the Plan. They contend that sections 1125(b) and 1126(e) are not applicable to the
Claim Allowance Agreements. See Reply to U.S. Trustee Suppl. Obj. ¶ 22. They also contend
that in any event, the U.S. Trustee has not demonstrated grounds for designating the votes of the
Class 5 Claim Allowance Creditors. Id. ¶ 27. Finally, they assert that, assuming arguendo that
they violated section 1125(b), the sole remedy for such violation is the designation of the votes
of the Class 5 Claim Allowance Creditors under section 1126(e). They content that section
1129(a)(2) does not provide grounds to deny Plan confirmation.
The U.S. Trustee notes that as applied to section 1125(b) of the Bankruptcy Code, the
terms “solicit” and “solicitation” “do not encompass discussions, exchanges of information,
negotiations, or tentative arrangements that may be made by the various parties in interest in a
bankruptcy case which may lead to the development of a disclosure statement or plan of
reorganization, or information to be included therein.” U.S. Trustee Suppl. Obj. at 15 (quoting In
re Snyder, 51 B.R. 432, 437 (Bankr. D. Utah 1985) (cited by Century Glove, Inc. v. First Am.
Bank of New York, 860 F.2d 94, 101 (3d Cir. 1988)). He maintains that the negotiations with the
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Class 5 Claim Allowance Creditors leading up to the execution of the Claim Allowance
Agreements did not touch upon matters relating to the development of a confirmable plan of
reorganization or the adequacy of the filed Disclosure Statement. See id. at 16. He asserts that
instead “[t]he Debtors sole purpose in their communications with the creditors was to leverage
the claims resolution process to extract a commitment from the creditors to vote for the Plan.” Id.
He notes that “[t]he Debtors’ claims resolution communications with the creditors were
accompanied by a form agreement that bound the claim to a vote for the Plan.” Id.
The term “solicitation” is not defined under the Bankruptcy Code. In Century Glove, Inc.
v. First Am. Bank, the Third Circuit said:
“solicitation” must be read narrowly. A broad reading of § 1125 can seriously
inhibit free creditor negotiations. . . . The purpose of negotiations between
creditors is to reach a compromise over the terms of a tentative plan. The purpose
of compromise is to win acceptance for the plan. We find no principled,
predictable difference between negotiation and solicitation of future acceptances.
We therefore reject any definition of solicitation which might cause creditors to
limit their negotiations.
860 F.2d 94, 101–02 (3d Cir.1988). Moreover, as Judge Glenn noted, “[c]ase law indicates that
the term . . . should relate to the formal polling process in which the ballot and disclosure
statement are actually presented to creditors with respect to a specific plan, and the term should
not be read so broadly as to chill the debtor’s postpetition negotiations with its creditors.” In re
Residential Capital, LLC, Case No. 12–12020, 2013 WL 3286198 at * 19 (Bankr. S.D.N.Y. June
27, 2013) (quotations and citations omitted).
The U.S. Trustee maintains that the communications surrounding the negotiation and
execution of the Claim Allowance Agreements are “fundamentally different” from the ones
carved out from the definition of solicitation cited above in In re Snyder, 51 B.R. at 437. U.S.
Trustee Suppl. Obj. at 16. He asserts that the Claim Allowance Agreements “were pre-drafted,
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with no room for negotiation with the creditors; all the creditors were required to sign it.” Id. He
argues that even if the Court adopts “the narrowest interpretation that only sending an official
ballot constitutes solicitation,” the Debtors’ actions nonetheless qualify as “solicitation in
substance,” because a creditor’s “signing this agreement, with no ability to reconsider the vote
for the Plan, has the same effect as voting to accept the plan on a ballot.” Id. at 16-17. He
maintains that “[i]f the creditor signs the agreement, it is legally bound to vote for the plan, as
opposed to a tentative agreement or informal promise to vote for the plan.” Id.
The Debtors liken the Claim Allowance Agreements to post-petition plan support
agreements that were “negotiated in good faith and at arm’s length, between sophisticated
commercial parties, and only after the Disclosure Statement and Plan had been filed.” See Reply
to U.S. Trustee Suppl. Obj. ¶¶ 26-27. However, the cases that the Debtors cite in support of that
contention are inapposite and inapplicable to the Plan Support Provisions. As noted, these
provisions call for the allowance of claims by the Debtors, and promises to vote in favor of the
Debtors’ reorganization plan, by the creditors. They bear no resemblance to the plan support
agreements that the Debtors cite. First, in those cases, the debtors sought court approval of the
agreements. Here, the Debtors did not seek Court approval of the Plan Support Provisions and
maintain that they were not required to do so. Moreover, in those cases, the agreements were
integral to the development of the plan and the respective debtors’ path forward to exit chapter
11. That is not the case here. The only “plan support” provision in the Claim Allowance
Agreement is the subject Class 5 Claim Allowance Creditors’ unconditional commitment to
support the Plan by, among other things, voting to accept the Plan. Further, while the plan
support agreements cited by the Debtors were executed prior to approval of the disclosure
statement and were executed in furtherance of a debtor formulating its plan—i.e., before the plan
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was filed in court—here that is clearly not the case.103 Moreover, the U.S. Trustee notes that
some courts have disallowed post-petition lock-up agreements. As support, he cites to In re
Stations Holding Co., Inc., Case No. 02-10882 (Bankr. D. Del. 2020) and In re NII Holdings,
Inc., Case No. 02-11505 (Bankr. D. Del. 2020). In those cases, the debtors and certain of their
creditors had entered into plan support agreements that included specific performance as a
remedy for breach of the agreement. In each case, the Delaware bankruptcy court found that the
remedy rendered the provisions into votes to accept the plans, in violation of section 1125(b) and
designated the votes at issue. See In re Stations Holding Co., Inc., Case No. 02-10882 (Bankr. D.
Del. Sept. 30, 2002) Order Granting Motion of the United States Trustee Pursuant to Sections
1125(b) and 1126(d) and (e) of the Bankruptcy Code to Designate All Persons Who Executed
Post-Petition Lockup Agreements and to Direct that Their Ballots Not be Counted, and/or for
103 	In In re Bally Total Fitness of Greater N.Y., Inc., Case No. 08-14818 (BRL) (Bankr. S.D.N.Y. July 9, 2009)
the court approved a plan support agreement that required the prepetition senior secured lenders to vote in favor of
the plan and not to exercise remedies under their loan documents. Id. Motion of Debtors for Entry of an Order
Approving the Debtors’ Entry into (I) A plan Support Agreement and (II) Exit Financing Commitment Letters [ECF
No. 1041] ¶ 14. In exchange, the secured lenders received payment of the claim as well as common stock in the
reorganized debtor. Id. ¶ 16. The secured lenders also agreed to provide the exit finance which includes, among
other fees, a commitment fee, closing fee and payment of lenders’ expenses. Id. ¶ 19. The debtors sought approval
of the agreement under sections 105(a), 363(b), 364(c)(1), 503 and 507 of the Bankruptcy Code and claimed that
these agreements were a “very critical component” of the plan. The court agreed. Id.; July 9, 2009 Hr’g Tr. at 5:9-
6:21 [ECF No. 1248].
In In re Almatis B.V., Case No. 10-12308 (MG) (Bankr. S.D.N.Y. Aug. 3, 2010) [ECF Nos. 309, 349], the court
granted the debtors’ motion to enter in plan support agreements with prepetition lenders and provide exit financing
in exchange for full payment in cash to senior lenders as well as issuance of warrants in reorganized debtor in
exchange for the lender’s support of the plan. Id. [ECF No. 309] ¶¶ 17, 20. Thus, the plan support agreement was
integral to the revised plan. Id. ¶ 3. The debtors sought approval of the plan support agreement under section 105(a),
363(b) and 1125(b) of the Bankruptcy Code, which the court approved. Id. [ECF No. 349] ¶ 2.
In In re Lehman Bros. Holdings Inc., Case No. 08-13555 (JMP) Hr’g Tr. at 54:2-5 (Bankr. S.D.N.Y. Aug. 30,
2011) [ECF No. 19935] the court approved plan support agreements entered prior to the approval of the disclosure
statement that resulted in “achieving a highly desirable purpose, orderliness in lieu of unnecessary litigation.” The
plan support agreement provided the framework for a chapter 11 plan of reorganization and specified the treatment
of claims including the floating rate debt, mezzanine debt, fixed rate debt, other secured debt, general unsecured
claims, intercompany claims, section 510(b) claims, deficiency claims, administrative claims as well as priority
claims. Id. [ECF No. 10465] ¶ 26. The debtors sought approval of the plan support agreement under section 363 of
the Bankruptcy Code. Id. at 1. The court approved the agreement. Id. [ECF No. 10877].
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Sanctions or Other Relief [ECF No. 177], and In re NII Holdings, Inc., Case No. 02-11505
(Bankr. D. Del. Oct. 25, 2002), Order dated October 25, 2002) [ECF No. 367]. 104
The Claim Allowance Agreements obligate the Debtors to file a Claim Allowance
Stipulation with the Court seeking to allow the subject claim as a general unsecured claim, and
simultaneously to file a notice withdrawing the objection to the subject claim. See Claim
Allowance Agreement Template. The Plan Support Provisions obligate the Class 5 Claim
Allowance Creditors: (i) to timely cast any and all votes in respect of the Claim to vote in favor
of acceptance of the Plan; (ii) to not oppose or object to approval of the Disclosure Statement
and confirmation of the Plan; and (iii) to include a provision in any claim transfer document
binding the purchaser or transferee, and any subsequent purchasers or transferees, to the
agreement. Id. at 4. The Claim Allowance Agreements are not “plan support agreements” in the
conventional sense. They are agreements by Class 5 Claim Allowance Creditors to vote their
claims in favor of the Debtors’ Plan (even as it may be amended from time to time), conditioned
only on the Court’s allowance of the claims as Allowed General Unsecured Class 5 Claims
against the Debtors. Each agreement was entered prior to the Court’s approval of the Disclosure
Statement. The specific performance provision in the agreements at issue in Stations Holdings
and NII Holdings appear to have been the key provision in the Delaware court’s determination
that, for purposes of section 1125(b), the agreements in those cases were deemed equivalent to
votes in favor of the subject plans. Although the Claim Allowance Agreement does not include
specific performance as a remedy for breach of the agreement, on its face it is an enforceable
104 	These orders are not available on Westlaw, Lexis, or PACER. The description here relies on the summary of the
orders contained in Collier. See In re Residential Cap., LLC, No. 12-12020, 2013 WL 3286198, at *20 n.5 (Bankr.
S.D.N.Y. June 27, 2013) (same).
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agreement obligating the counterparty Class 5 Claim Allowance Creditor to vote in favor of the
Debtors’ Plan, that was executed prior to the Court’s approval of the Disclosure Statement.
The Debtors have disclaimed any right to enforce the Plan Support Provisions and
entered into new agreements with the Class 5 Claim Allowance Creditors that did not include the
Plan Support Provisions. Moreover, it is undisputed that only forty-five of the ninety-five
Allowed General Unsecured Class 5 Claims originally subject to the Plan Support Provisions,
voted to accept the Plan. Still, the U.S. Trustee seems to contend that the Debtors cannot “un-
ring the bell” as he maintains that the Debtors nonetheless should be sanctioned for their alleged
breaches of section 1125(b) of the Bankruptcy Code. Moreover, although he acknowledges that
the remedy called for under the Bankruptcy Code for a section 1125(b) violation is the
designation of votes of the claims at issue under section 1126(e) of the Bankruptcy Code, he
maintains that the only appropriate remedy, and the one he is seeking herein, is for the Court to
deny Plan confirmation under section 1129(a)(2) of the Bankruptcy Code.
The U.S. Trustee reasons that the Debtors launched their allegedly improper bid to solicit
votes from the Class 5 Claim Allowance Creditors in violation of section 1125(b) to ensure that
Holders of Allowed General Unsecured Class 5 Claims vote to accept the Plan. He asserts that
“because the disallowance of votes would only increase the likelihood of the acceptance of Class
5, thereby imposing no penalty on the Debtors’ misconduct, the only appropriate remedy is to
deny confirm of the Debtors’ Plan.” U.S. Trustee Suppl. Obj. at 14-15. In his view:
[t]he problem with designating the votes needs to be considered in the context of
the circumstances of this case. The [Class 5 Claim Allowance Creditors] are
members of Class 5, which also includes unsecured noteholders. The Debtors no
doubt anticipate that it has sufficient support from noteholders to satisfy the 2/3 in
amount, quantitative requirement, for achieving acceptance by Class 5. The
Debtors’ undisclosed efforts to secure the votes of creditors appears to have been
intended to ensure the satisfaction of the 1/2 numerosity requirement for class
acceptance. Therefore, the usual remedy of designating votes by removing the
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votes from consideration only increases the likelihood that the Debtors’ goal of
obtaining the acceptance of Class 5 will be achieved. That approach rewards the
Debtors for their misconduct. A more equitable and appropriate solution is to
deny confirmation of the Plan.
Id. at 18.
The Court disagrees. Assuming, arguendo, that the Debtors violated section 1125(b) in
entering into the Claim Allowance Agreements, a denial of Plan confirmation is neither an
equitable nor appropriate resolution to the objection. By its terms, section 1126(e) provides the
exclusive remedy for violations of section 1125(b). See In re Texaco, Inc., 81 B.R. 813, 816
(Bankr. S.D.N.Y. 1988) (holding that in the event of improper solicitation of votes, the exclusive
relief afforded under the Code is to have improper votes disregarded for voting purposes); In re
WorldCom, Inc., No. 02-13533 (AJG), 2003 Bankr. LEXIS 2192, *35-36 (Bankr. S.D.N.Y. May
16, 2003) (holding that even if the Debtors had improperly solicited acceptances of the plan,
appointment of a chapter 11 trustee was not an appropriate remedy because Section 1126(e) of
the Code provides an exclusive remedy for improper solicitation). Section 1126(e) “grants the
bankruptcy court discretion to sanction any conduct that taints the voting process, whether it
violates a specific provision or is in ‘bad faith.’” Century Glove, Inc., 860 F.2d at 97. See also In
re Adelphia Commc'ns Corp., 359 B.R. 54, 60 (Bankr. S.D.N.Y. 2006) (“Section 1126(e) is
permissive in nature, and a bankruptcy judge has discretion in designating votes.”). The statute
applies equally to actions by debtors and creditors. As relevant, “it provides a basis to designate,
without regard to the creditor’s motive, where the vote is ‘solicited or procured’ in bad faith.” In
re Quigley Co., Inc. 437 B.R. 102, 130-31 (Bankr. S.D.N.Y. 2010); see also In re Sandia
Resorts, Inc., No. 11-15-11532 JA, 2016 WL 6879249, at *5 (Bankr. D.N.M. Nov. 4, 2016)
(noting same). It also applies on an “entity specific” basis. Thus, on the facts of the case, if the
U.S. Trustee sought relief under section 1126(e) (which he does not) at best, only the votes of the
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Claim Allowance Creditors who voted to accept the Plan could be designated under section
1126(e). The designation of those votes would have no impact on the votes cast by the remaining
Class 5 creditors. It is undisputed that if the U.S. Trustee successfully designated the votes of the
Claim Allowance Class 5 Creditors, and the Court disallowed their votes, Class 5 would
nonetheless vote to accept the Plan by the requisite majorities called for under section 1126(c) of
the Bankruptcy Code.
Section 1129(a)(2) requires that “[t]he proponent of the plan complies with the applicable
provisions of [the Bankruptcy Code].” 11 U.S.C. § 1129(a)(2). The U.S. Trustee invokes this
provision to remedy the Debtors’ alleged breach of section 1125(b). He maintains that for the
reasons set forth above, the Debtors actions in entering into the Claim Allowance Agreements
violated section 1125(b) and, so under section 1129(a)(2), the Plan is not confirmable because it
does not comply with “applicable provisions” of the Bankruptcy Code. There is no merit to that
position. As noted, section 1126(e) is the exclusive remedy available to the U.S. Trustee.
Moreover, in any event, section 1129(a)(2) does not provide for an affirmative grant of authority.
It cannot provide any relief to remedy the Debtors’ alleged breach of section 1125(b), let alone
relief that is greater than the relief available under section 1126(e). As the court stated in In re
Adelphi Commc’ns Corp:
Section 1129(a) of the Code lists requirements that need be satisfied to secure
confirmation—conditions for confirmation, if you will. Section [1129(a)(2)] is
one of those requirements. But like the other requirements for confirmation that
appear in section 1129(a), section [1129(a)(2)] is still no more than a requirement
or condition. It does not provide for an affirmative grant of authority. It does not
give permission to do anything.
441 B.R. 6, 13 (Bankr. S.D.N.Y. 2010).
The Court overrules the U.S. Trustee’s Supplemental Objection.
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Conclusion
Based on the foregoing, the Court overrules the Plan Objections and finds that the Plan
satisfies the requirements of section 1129 of the Bankruptcy Code. An appropriate Confirmation
order will be entered herewith.
Dated: New York, New York
June 18, 2022
/s/ James L. Garrity, Jr.
Hon. James L. Garrity, Jr.
U.S. Bankruptcy Judge
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