Brazil Traders Who Spurned 55% Bond Haircut Are Vindicated

  • Only 22% of Gol bondholders accepted restructuring deal
  • The airline’s bonds have jumped 64% since deal closed July 1

Bond investors who refused to provide Brazil’s biggest airline with the debt relief it wanted are now being vindicated.

Gol Linhas Aereas Inteligentes SA’s $200 million of so-called perpetual notes have soared 64 percent since July 1, when the company finalized a debt restructuring that was accepted by 22 percent of bondholders, far short of the 95 percent rate desired by the company. The airline offered just 45 cents on the dollar for the perpetual securities, which are now trading at 52.5 cents.

While Gol got a lot less debt relief than it wanted, the cash-strapped airline is regaining investor confidence after announcing it will cut the size of its fleet by 11 percent until the end of the year and reporting its second straight quarterly profit this week because of a surging Brazilian currency. The real’s 23 percent gain this year and lower fuel costs are offsetting a drop in revenue triggered by Brazil’s deepest recession in more than a century.

“With 20/20 hindsight, it seems that not taking the offer may have been the best decision,” said Jorge Piedrahita, the chief executive officer at New York-based brokerage Torino Capital. “At that time, uncertainty was large.”

During a conference call on Tuesday, Gol Chief Executive Officer CEO Paulo Kakinoff said that the company is generating enough cash to cover debt service in 2016.

But despite the rebound in Gol’s bonds, the securities remain highly distressed. Its perpetual notes yield 14.47 percentage points more than U.S. Treasuries.

“The industry context remains very challenging and liquidity is tight,” Cedric Rimaud, a director of emerging-market research at Gimme Credit, said in a note Wednesday. “Gol is not out of the woods.”

The real rose 0.5 percent to 3.2227 reais per dollar as of 11:57 a.m. in Sao Paulo.

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