PAL files for ‘local recognition’ of US bankruptcy court rulings

Philippine Airlines Inc. (PAL) said it has filed a petition seeking for local recognition of the proceedings as well as the decisions of a US bankruptcy court in relation to its bankruptcy as part of its restructuring plan.

In a disclosure to the Philippine Stock Exchange on Wednesday, PAL’s parent firm PAL Holdings Inc. said the flag carrier filed a petition before a Pasay City court “for the principal purpose of ensuring that the local courts will recognize formally the Chapter 11 process and the corresponding decisions the New York court may grant or award.”

The local court filing is in accordance with the over-all plan in regard to the filing of the Chapter 11 petition before the US Court of New York.

“The recognition petition filed by PAL before a local court is a petition which aims to ensure that the Philippine legal system recognizes all proceedings and decisions rendered by the foreign court handling the Chapter 11 case,” PAL spokesperson Cielo Villaluna said in a statement.

Early this month, PAL announced it filed for a Chapter 11 case or bankruptcy protection before the US Bankruptcy Court of Southern District of New York, as part of its restructuring plan.

Under agreements with creditors, PAL will secure some $505 million for its recovery plan upon its exit from the process — the first tranche will be a $250-million facility debt to be pared down in the next five years, and the second tranche worth $255 million will be converted into equity.

PAL recently secured the approval of a United States bankruptcy court to begin the process of securing loan financing for its recovery and restructuring plan. 

In the US Chapter 11 court’s decision, PAL was allowed to access the first $20 million of its “debtor-in-possession financing” amounting to $505 million.

Under its restructuring plan, PAL is aiming to reduce its debt by $2 billion and secure $505 million in long-term equity and debt financing from its existing shareholders and banks.

Apart from accessing the first $20 million of its planned $505 million debt financing, the US bankruptcy court  also allowed PAL to operate in the normal course ensuring that the Company can continue to serve customers as a full-service airline and the flag carrier of the Philippines.

The flag carrier also received authorization to do the following:

• Honor and maintain all customer programs, including valid tickets and travel vouchers, Mabuhay Miles and benefits, and refund obligations, subject to PAL’s usual terms and conditions of use. Mabuhay Miles members can expect to continue to accrue and redeem Mabuhay Miles as usual;
• Pay ongoing suppliers and trade creditors in the ordinary course for goods and services delivered throughout the Chapter 11 process or corporate restructuring process; and 
• Continue to pay all employee wages, compensation and benefit obligations, subject to the continuation of any temporary work arrangements as necessary and maintain employee benefit programs in the ordinary course of business throughout the Chapter 11 process

These approvals mark an important step forward in PAL’s recovery plan, which will reduce the company’s debt by $2 billion and help the company recover from the impact of the global pandemic, PAL said.

PAL is confident it will exit the Chapter 11 or corporate restructuring process by the end of the year, but revenues are unlikely to return to pre-COVID-19 levels until after 2025.

While under the restructuring process, the flag carrier said it will continue to operate flights in the normal course of business in accordance with safety regulations.

The airline said it expects to continue to meet all its current financial obligations throughout the Chapter 11 process to employees, customers, the government, and its lessors, lenders, suppliers, and other creditors.

PAL earlier clarified that it is the only party included in the Chapter 11 filing, while its listed holding firm PAL Holdings Inc. and Air Philippines Corporation, known as PAL Express, are not included in the Chapter 11 filing.

PAL’s top five creditors with the largest “secured claims” amounting to $866.09 million are Philippine National Bank with $156.51 million worth of borrowings, Banco De Oro Unibank Inc. with $80.42 million, China Banking Corp. with $54.83 million, EXIM Guaranteed Loans with $240.1 million, and PK Airfinance S.A.R.L. with $334.23 million.

The airline’s 40 largest creditors with “unsecured claims” totaling to more than $1.4 billion include Philippine National Bank with $115.92 million worth of debt, China Banking Corp. with $65.27 million, and Asia United Bank with $75.30 million. —KG, GMA News