Gol Gets Delta Help While Pursuing $780 Million Debt Exchange

  • Brazilian airline also wants to extend maturity on local bonds
  • Carrier says it will seek another 300 milllion reais in credit

Gol Linhas Aereas SA received some debt relief from investor Delta Air Lines Inc. and is looking to extend the maturity of 1.05 billion reais ($300 million) in local bonds as the Brazilian carrier struggles to reshape its finances amid a deepening recession in its home market.

Gol also is seeking another 300 million reais in credit, it said in a statement Wednesday, a day after disclosing an offer to exchange $780 million of dollar-denominated notes for new securities maturing over a decade. 

Delta, which holds a 9.5 percent stake in Gol, agreed to reduce the collateral the Brazilian carrier must hold under the U.S. airline’s guarantee of a $300 million term loan from last year. The Delta deal depends on the success of Gol’s new exchange offer.

Gol, Brazil’s second-biggest airline by market share, said it is negotiating with Banco do Brasil SA and Banco Bradesco SA, the holders of its 1.05 billion reais in debentures, to waive certain financial obligations for a year and extend the maturity of 90 percent of the principal payments to 2018 and beyond. The measure would reduce debt payments by 225 million reais until 2018, according to the statement.

Gol’s shares rose 13 percent to 2.86 reais at 11:14 a.m. in Sao Paulo. The stock was up less than 1 percent this year through Tuesday.

New Securities

Bondholders of five tranches of debt, one of them maturing as early as next year, are being asked to accept new securities due in 2018, 2022 and 2028, Gol said in a regulatory filing Tuesday. The new notes will be senior to all of the airline’s existing and future unsecured debt. The haircut for bondholders, who have until June 1 to accept the offer, will range from 30 percent to 70 percent, Chief Financial Officer Edmar Lopes said on a call with reporters.

Gol cited Brazil’s political instability and contracting economy, along with a “sharp devaluation” in the country’s currency against the U.S. dollar last year that led to a decline in travel. Airlines have been particularly hurt by weak demand among business passengers, who typically generate the most-profitable fares.

“We are offering a coupon that makes sense for current bondholders,” Lopes said. “We understand this is a good offer, considering market conditions. This is what is possible within the company’s cash flow, looking at our balance sheet and considering how we aim to deleverage the company for the upcoming years.”

An agreement disclosed earlier with Boeing Co. to delay delivery of its next aircraft to mid-2018 will provide some relief to Gol’s cash flow, which it intends to use in the debt exchange, the carrier said Wednesday.

‘Absolutely Necessary’

Gol is responding to Brazil’s deepest recession in at least a century in part by reducing the size of its fleet about 15 percent until year-end of the year. The airline is cutting its flights and total seats by 15 percent to 18 percent this year.

“We are taking all the measures, and they are all absolutely necessary to guarantee the company’s viability in the medium term,” Lopes said.

Debtholders who accept the exchange offer by the end of business on May 17 will be entitled to an early participation premium. While Gol is seeking acceptance of 95 percent of the aggregate amount of each bond series, the operation can move ahead with lower participation, Lopes said.

The company’s 8.875 percent $325 million in bonds due 2022, its most liquid dollar-denominated securities, have dropped 42 percent this year and trade at 25 cents on the dollar, according to data compiled by Bloomberg. Yields on the notes jumped 18.8 percentage points, to 48.52 percent.

Quarterly Loss

Gol posted a fourth-quarter net loss of 1.18 billion reais and is set to release first-quarter results on May 11.

D.F. King & Co. has been appointed as the information agent and the exchange agent for the offer. PJT Partners is serving as financial adviser, while Milbank, Tweed, Hadley & McCloy LLP is serving as legal adviser to Gol.

Before it's here, it's on the Bloomberg Terminal.