The interest of both companies in jointly exploring their potential participation in the sale process of the assets of WOM SA and its affiliates in Chile lies in the potential benefits that the transaction could generate for their clients and Chilean consumers in general, both companies said in a statement this afternoon.

América Móvil, SAB de CV (“AMX”), through one of its subsidiaries, and Telefónica SA (“TEF”) signed a non-binding agreement on Monday to jointly explore their potential participation in the sale of the assets of WOM SA and its affiliates in the context of its Chapter 11 reorganization process pending before the United States Bankruptcy Court for the District of Delaware.

In a press release sent in the afternoon by Telefónica, it is highlighted that the parties indicated that they may decide at any time not to submit an offer and, if they do so, any offer and potential transaction will be subject to the bidding procedures and the regulatory rules and authorizations required under the reorganization procedure of WOM SA and under the applicable sectoral and competition rules, including the prior authorization of the National Economic Prosecutor's Office (FNE) of Chile.

The interest of both companies in jointly exploring their potential participation in the sale process of the assets of WOM SA and its affiliates in Chile lies in the potential benefits that the transaction could generate for their clients and Chilean consumers in general, given that the sustainability of the telecommunications sector would be reinforced by increasing the capacity to continue investing and competing in high-speed and coverage networks, key to the digitalization of the country.

WOM REORGANIZATION

On June 20, WOM Chile announced an agreement with its creditors as part of its reorganization process under Chapter 11 of the United States Bankruptcy Law.

In early April, WOM, owned by the private equity fund Novator Partners LLC - controlled in turn by Icelandic tycoon Thor Björgólfsson - acknowledged its excessive debt commitments, but clarified that it was not in a liquidation or bankruptcy process, but rather "a capital restructuring to address its short-term liquidity needs."

When Wom's problems in Chile and then in Colombia became known, the Chilean regulator, the Undersecretariat of Telecommunications (Subtel) indicated that such a process would not affect the operation of the service for its customers in terms of telephone, television and fiber optics.

"As a regulator, we will ensure that this principle is respected. We will also monitor that this measure enables the company to respond to the financial difficulties it is currently facing," the entity said in a statement.

Risky decisions, such as withdrawing dividends of $340 million in 2022, together with accumulated debt of more than $700 million and management problems, contributed to the deterioration of its financial situation.

"These factors led the company into a crisis that triggered requests for forced liquidation by some of its suppliers, which increased uncertainty about its future," Vicente Cruz, CEO of Sheriff, a scoring firm, explained to AméricaEconomía.

The news also affected the implementation of the 5G network, where the inability to comply with the deployment of 5G antennas, which had to be installed by tender, and the downgrades in WOM's credit rating by credit agencies also affected its financial stability.

"Chapter 11 is a legal process in the United States that allows companies to reorganize their capital structure. It allows us to protect our employees and our customers by not having interruptions in their service. In this way, it allows WOM to restructure its finances for the long-term growth of the company," the firm told its clients on its website.

So when it announced its entry into Chapter 11 in April, it also announced a $210 million debtor-in-possession (DIP) financing agreement with US investment bank JP Morgan.

"A DIP financing is a type of credit provided to a company in reorganization to allow it to continue operating while it restructures its finances, which is usually guaranteed by its assets and where it is normally given priority over other creditors in a bankruptcy process," explained the Chilean media La Tercera.

The U.S. Bankruptcy Court approved the financing on June 20, freeing up $110 million of available liquidity to support its business operations and restructuring efforts, the company said.

Again, WOM spoke to its clients via its official website: "The Delaware Court approved us for a $210 million Debtor In Possession financing from JPMorgan, which will provide us with capital to support our operations and enable growth in the local market."

“The agreement ensures WOM Chile’s ability to continue operating its business and proceed with its orderly restructuring process in the United States and maximize value for all stakeholders, including by applying a competitive bidding process to explore all available strategic alternatives to consummate the highest and best transaction to exit the reorganization process,” WOM said.

WOM Chile explained the move: “WOM Chile, the Official Committee of Unsecured Creditors and the Ad Hoc Group of bondholders announced today that they have reached an agreement to (i) continue the financial reorganization process in the US under Chapter 11 of the US Bankruptcy Code, and (ii) support the evaluation of alternatives to exit the reorganization process,” the firm said in a statement.

The company also indicated that “the agreement, which is subject to subsequent approval by order of the U.S. Bankruptcy Court for the District of Delaware, includes a number of specific points. Among other things, pursuant to the agreement, the Ad Hoc Group of bondholders agreed to withdraw most of its objections to WOM Chile’s requests and its motion to dismiss, thereby allowing the reorganization process to continue in the U.S., and the parties agreed to expand the ability to pay local suppliers as requested by WOM Chile. WOM Chile’s special committee comprised of two independent directors will consider all relevant factors in evaluating the qualified offers in relation to the alternatives to exit the reorganization process,” it said in its statement.

The truth is that the whole process could take some time.

"A Chapter 11 procedure ends once the agreed reorganization plan for each case is executed, which can last months or years. In perspective, the LATAM procedure lasted a little over two years," Andrés Del Real, Director of the Dispute Resolution and Arbitration Practice at Arteaga & Gorziglia, told AméricaEconomía.

As for lessons, most will come in relation to the predictability and assumption of market risks and the decisions the Company made around them.

"Each company and its management make decisions based on what they can do, and sometimes the market reading may not be correct, which leads the company to undergo a procedure to reorganize its liabilities before going straight into bankruptcy and thus surviving. Above all, undergoing a reorganization is a prudent decision that can avoid bankruptcy, the final instance in which practically everyone loses," concluded Del Real.