Colombian court orders $370 million loan to Avianca temporarily witheld

BOGOTA (Reuters) - A Colombian court has ordered government loans worth $370 million made to Avianca Holdings under U.S. Chapter 11 bankruptcy laws be temporarily withheld, until the airline guarantees it will be able to repay the money.

At the end of August, the Ministry of Finance said the government would support the restructuring of Colombia’s flagship airline with the loan, sparking controversy with criticism that guarantees of repayment were not sufficient.

Amid the uproar, a judicial action was presented to the administrative tribunal of Cundinamarca requesting the loan be suspended.

The court ruled Colombia’s government must not issue the loan to Avianca until the company presents sufficient guarantees it will be able to repay the loan.

There was no immediate response from the government, which previously defended it’s decision to issue the loan, nor from Avianca about the ruling on Friday night.

Avianca, which entered a restructuring process under Chapter 11 U.S. bankruptcy laws during the middle of the coronavirus pandemic, has begun domestic flights in the Andean country and hopes to gradually restart its international operations this month.

In mid-August Avianca Holdings, Latin America’s second-largest airline, launched a plan to raise $1.2 billion in new funds - not including loan repayments - as part of the restructuring process.

The plan, which includes the $370 million loan from the Colombian government, must be evaluated and authorized by a judge who is overseeing the case in the Southern District of New York.

Avianca has a fleet of 158 planes with 19,000 employees and flies to 76 destinations in 27 countries in America and Europe.

Reporting by Luis Jaime Acosta; Writing by Oliver Griffin; editing by Diane Craft