BRW Term Loan

6 Months Ended

Jun. 30, 2019

Receivables [Abstract]

BRW TERM LOAN

BRW TERM LOAN

In November 2018, United, as lender, entered into a Term Loan Agreement (the "BRW Loan Agreement") with, among others, BRW Aviation Holding LLC and BRW Aviation LLC (“BRW”), as guarantor and borrower, respectively, affiliates of Synergy Aerospace Corporation (“Synergy”), the majority shareholder of Avianca Holdings S.A. (“AVH”), as guarantor and borrower, respectively. Pursuant to the BRW Loan Agreement, United provided a $456 million term loan to BRW (the "BRW Term Loan"), secured by a pledge of BRW's equity, as well as BRW's 516 million shares of common stock of AVH (having an implied value equivalent to 64.5 million American Depositary Receipts ("ADRs"), the class of AVH securities that trades on the New York Stock Exchange (the "NYSE")), the parent company of Aerovías del Continente Americano S.A. BRW is currently in default under the BRW Loan Agreement.

On May 13, 2019, S&P Global Ratings downgraded its AVH issuer level credit ratings from B to CCC+, together with accompanying downgrades for AVH’s frequent flyer subsidiary LifeMiles Ltd. ("LifeMiles") and for certain outstanding debt of both AVH and LifeMiles. Following these downgrades, and in order to protect the value of its collateral, on May 24, 2019, United began to exercise remedies available to it under the terms of the BRW Loan Agreement and related documents. In connection with the delivery by United of a notice of default to BRW, Kingsland Holdings Limited ("Kingsland"), AVH’s largest minority shareholder, was granted, in accordance with the agreements related to the BRW Loan Agreement, independent authority to manage BRW, which remains the majority shareholder of AVH. As a result of these developments, United evaluated the $489 million carrying value of the BRW Term Loan as of June 30, 2019 using the fair value of the collateral and determined that the value of the collateral is sufficient to recover the carrying value of the loan and, accordingly, concluded that the BRW Term Loan is not impaired.

The fair market value of AVH equity was estimated using an income approach and a market approach with equal weight applied to each approach. Under the income approach, the value was estimated by discounting expected future cash flows at a weighted average cost of capital to a single present value amount. Under the market approach, the value was estimated by reference to multiples of enterprise value to earnings before interest, taxes, depreciation, amortization and rent ("EBITDAR") for a group of publicly-traded market comparable companies, along with AVH's own EBITDAR levels.