A group of Latam Airlines Group SA’s creditors said they are prepared to provide alternative financing if a bankruptcy judge rejects a financial lifeline from another creditor group.

The splinter group of creditors, which includes Pentwater Capital Management LP, Invictus Global Management LLC and Avenue Capital Group, said it is ready to backstop $400 million of a rights offering and roughly $3.27 billion in the sale of convertible notes, according to people familiar with the matter.

The...

A group of Latam Airlines Group SA’s creditors said they are prepared to provide alternative financing if a bankruptcy judge rejects a financial lifeline from another creditor group.

The splinter group of creditors, which includes Pentwater Capital Management LP, Invictus Global Management LLC and Avenue Capital Group, said it is ready to backstop $400 million of a rights offering and roughly $3.27 billion in the sale of convertible notes, according to people familiar with the matter.

The creditors, whose unsecured debts include lease claims and unsecured notes maturing in 2024 and 2026, said their proposal would increase the restructuring plan’s equity value to $7.79 billion from $7.61 billion, according to the commitment letter and related materials viewed by The Wall Street Journal.

The offer is an alternative to an existing financing deal proposed by another group of creditors including Sixth Street Partners that Latam is hoping to get court approval for in order to end the bankruptcy brought on by the Covid-19 pandemic.

Since the current offer was presented in November, dissenting creditors, including the holders providing the new deal, have contended that Latam is paying an unreasonable amount of fees to secure the funding it needs.

The new deal was sent to Latam and discussed in court last week but wasn’t part of the record, a source familiar with the matter said.

The splinter group, which also includes Corre Partners Management LLC and Hain Capital Group LLC, said that their cash fee for backstopping the deal would be 15%, or roughly $550.5 million.

Last Friday, Judge James Garrity of the U.S. Bankruptcy Court in New York deferred ruling on the existing financing proposal as stakeholders continued to contend the fees.

Under the existing proposal provided by Sixth Street Partners, Strategic Value Partners and Sculptor Capital Management, the creditors are committed to ensuring that two-thirds of a $5.44 billion capital raise is placed successfully and that none of those securities go unsold.

In exchange, the creditor group would receive 20% in a cash fee of their roughly $3.67 billion investment, equal to $734 million.

The new offer would improve recoveries for certain unsecured creditors not involved in the backstopping to roughly 39 cents on the dollar from 28 cents on the dollar, the alternative group’s materials show. The alternative financing also gives those creditors their prorated share of new convertible bonds, while the current proposal gives more to the backstop group.

The roughly $740 million fee is “completely above market” and “egregious,” said Robert Koltai,

founder and managing member of Rutherford, N.J.-based Hain Capital, which is part of the group offering the new deal. Some creditors weren’t invited to participate in the financing talks, he added.

Latam has said the backstop fees in the Sixth Street deal are reasonable, the product of hard-fought negotiations, and necessary to guarantee the company financing amid significant risks to its business from the continuing pandemic, oil-price volatility and competition from low-cost carriers in Latin America. In November, Latam said its restructuring agreement had the support of more than 70% of the parent company’s unsecured claims. It said its plan has continued to gain support since then.

Latam said the alternative proposal is not fully committed or binding. A source familiar with the alternative proposal said it has a two-week diligence period but is otherwise binding.

The group with the financing now being weighed by the judge said it has been marketed for months and that no other alternative has come close to its viability.

—Andrew Scurria and Akiko Matsuda contributed to this article.

Write to Becky Yerak at becky.yerak@wsj.com