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Elliott Management Is the Mystery Lender Behind Colombian Airline Pledge

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Elliott Management Is the Mystery Lender Behind Colombian Airline Pledge

  • Avianca filing said controller pledged stock to third parties
  • Bulk of Efromovich family stake in carrier used to back loans

In late April, deep in a 165-page regulatory filing, Avianca Holdings SA inserted this enigmatic mention: The Colombian airline’s controlling shareholder had pledged the majority of its stake to unidentified lenders.

That spurred a rash of speculation among investors -- who was behind this deal with its controlling shareholders, the brothers German and Jose Efromovich?

It turns out one of the mystery partners is Paul Singer’s Elliott Management, and the firm is working with an adviser, Seabury Group, that has visited Bogota to assess Avianca’s operations, according to two people with knowledge of the matter who asked not to be identified because the information is private. Among the key points being reviewed are the potential benefits of taking over a separate airline in Brazil controlled by the Efromovich brothers, said one of the people.

German Efromovich, who is also the chairman of Avianca, declined to comment on the shares pledged by the holding company.

“It’s still my own asset so I cannot see how this can do any harm or make any difference,” Efromovich said in an interview.

Avianca Holdings last year rejected a proposal to buy closely held OceanAir Linhas Aereas SA, which operates as Avianca Brasil, people familiar with the matter said in October. The Colombian company also had previously turned down an option to purchase the Brazilian airline in 2010, and was still owed cash for working capital it provided while the option was pending, according to the April regulatory filing.

Seabury and Elliott declined to comment. Avianca said it couldn’t comment on its shareholders and referred questions to German Efromovich. The Efromovichs, through Synergy Aerospace Corp., own 78 percent of Avianca Holdings’s common stock. The rest of the common shares are owned by a minority investor who has veto power over some of the airline’s decisions. Only the preferred shares trade publicly.

The stock rose the most in a month, adding 4.6 percent to 2,385 pesos at 12:21 p.m. in Bogota trading for the biggest gain on the benchmark Colcap index. The shares have rallied 41 percent this year, compared with a 58 percent gain for the BI Latin America Airlines - Competitive Index.

It’s not the first time Efromovich has pledged shares in order to secure loans. Back in 2014, Avianca disclosed that 19 percent of Synergy’s common shares backed a loan from Citigroup Inc. and its affiliates. In the annual filing made this April to U.S. regulators, the company said a majority of Synergy’s stake has now been pledged. Most of that went to Elliott, one person said.

Meanwhile, Avianca has been searching for a partner that could make a significant capital investment in the airline, Efromovich said last month in an interview on W Radio.

Both Avianca and Avianca Brasil have taken a hit as Latin American airlines suffer amid declining demand and weaker currencies. While earnings momentum should improve in the second half of the year, Avianca Holdings’s balance sheet is “quite stretched,” with cash and short-term debt at close to the same level, Bank of America Corp. analysts wrote in a July 11 research report. A capitalization from a strategic partner would make sense and would remove balance sheet concern, the report said.

— With assistance by Sabrina Valle, and Katia Porzecanski

(Updates with share price in eighth paragraph.)