A 55% Haircut Might Just Be Best Deal That Gol Creditors Can Get

  • Bondholders rejected first offer proposing up to 70% loss
  • Brazil’s biggest airline won’t improve debt-swap deal further

Bondholders forced Brazil’s biggest airline to go back to the drawing board when they spurned its debt-restructuring offer last month.

The carrier’s latest proposal -- which asks them to accept losses of as much as 55 percent -- may be the best deal they’re going to get.

Gol Linhas Aereas Inteligentes SA is struggling to stay current on $780 million of debt as Brazil’s worst recession in a century damps air travel. In its initial offer on May 3, the company proposed a creditor “haircut” of up to 70 percent, which bondholders quickly rejected.

While the new deal still imposes significant losses, Gol’s creditors have few other options, according to Torino Capital and Andbanc Brokerage. The airline burned through 484 million reais ($143 million) of cash in the first quarter. And if bondholders reject the latest offer, they risk pushing the airline into bankruptcy in Brazil, which could make recouping their money even harder.

“Investors should just take the deal now and move on,” said Jorge Piedrahita, the chief executive officer at Torino Capital, a New York-based brokerage. “We are at a point that if creditors push harder, they may derail the deal and end up with lower values.”

Gol Chief Financial Officer Edmar Lopes said he expects a “big share” of bondholders to take the new deal. Less than 20 percent of creditors accepted the first proposal. Gol’s $325 million of notes due 2022 fell 1.4 percent to 41.97 cents on the dollar as of 2:29 p.m. in New York, according to data compiled by Trace, the bond-price reporting system of the Financial Industry Regulatory Authority.

“We are not extending the offer beyond July 1, not even for a day,” he said. “This is our final and best offer.”

In a June 20 regulatory filing, Gol asked bondholders to accept new securities due in 2018, 2021 and 2028. Losses will range from 27.5 percent to 55 percent of face value, compared with the 30 percent to 70 percent haircut originally proposed, according to a statement sent to Brazil’s securities regulator. The new notes will be senior to all of the airline’s existing and future unsecured debt.

Gol also increased the interest rate on the new notes to 9.5 percent from 8.5 percent and offered premiums if more than 60 percent of holders accept the deal or if there is a change of control of the company.

Gol’s original debt-exchange plan proved a non-starter as foreign creditors said it imposed most of the losses on them while unfairly protecting local bondholders.

To Galloway Capital’s Ulisses de Oliveira, who doesn’t own the bonds, the new offer still doesn’t go far enough.

“Gol is still being unreasonable: no equity is being offered to creditors, local creditors are not taking any haircut,” he said. “International bondholders are getting the short end of the stick in order to accept what is still a steep haircut.”

While Gol isn’t giving bondholders any equity, the company will share future operating gains. It offered a one-time extra payment of 13.5 percent of the face value of the bonds due in 2021 and 2028 if the company’s earnings before interest and taxes surpass 800 million reais for four straight quarters on or after Dec. 31, 2017.

Bradesco BBI said the acceptance rate for Gol’s latest proposal will surge with the new deal and range from 50 percent to 100 percent.

“This is way more palatable than what they had proposed before,” said Carlos Gribel, the head of fixed income at Andbanc Brokerage. “I expect more creditors to adhere.”

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