Avianca, one of the largest airlines in Latin America, has recently announced a dip credit agreement with some of its creditors. This move is aimed at securing liquidity for the airline as it navigates the challenges presented by the COVID-19 pandemic.
The dip credit agreement is essentially a loan provided by certain creditors that is secured by Avianca`s assets. This type of financing is often used in bankruptcy proceedings as a way to provide the debtor with much-needed cash while also protecting creditors.
In Avianca`s case, the dip credit agreement is worth $50 million and will be provided by certain lenders, including some of the company`s existing bondholders. The funds will be used to support the airline`s operations, which have been severely impacted by the pandemic.
Avianca is not alone in seeking dip financing during this difficult time. Airlines around the world have been hit hard by the pandemic, with many facing bankruptcy or significant financial distress. Dip financing can provide a lifeline for these companies, allowing them to continue operating while they work to restructure and recover.
Of course, dip financing is not without its risks. The loans are generally secured by the company`s assets, meaning that if the debtor ultimately does go bankrupt, the lenders may be able to claim those assets ahead of other creditors. Additionally, dip financing typically carries higher interest rates and fees than other types of financing, reflecting the higher risk involved.
Overall, Avianca`s dip credit agreement is a significant development for the airline and its creditors. While it is not a silver bullet for the company`s financial troubles, it does provide some much-needed breathing room as Avianca works to navigate the ongoing challenges of the pandemic. As the global economy continues to struggle with the impacts of COVID-19, it is likely that other companies will also turn to dip financing as a way to weather the storm.