Azul Secures Additional $400 Million in Financing from Bondholders
Brazilian airline Azul has reached a successful agreement with bondholders to secure additional financing. In a statement today, the company announced that it expects this move to alleviate market concerns regarding its debt situation. Azul is a significant player in Brazil's aviation sector, sharing the market with LATAM and Gol. The airline managed to survive while some competitors faced bankruptcy during the COVID-19 pandemic.
The new capital comes as part of a recent agreement made with aircraft leasing companies. Azul agreed to cancel nearly $550 million in debt in exchange for giving leasing companies approximately a 20% stake in the company. Analysts believe this equity arrangement is crucial for Azul to strengthen its cash reserves.
According to a securities filing, Azul is set to receive $150 million this week, with an additional $250 million by the end of the year. This $400 million in new debt aligns with the amount the airline aims to raise. Furthermore, the agreement with bondholders could expand to include up to $100 million in additional financing and a potential debt-equity swap valued at up to $800 million. This will depend on Azul’s ability to enhance its cash flow by saving approximately $100 million annually.
Azul's CEO, John Rodgerson, expressed confidence in the airline's ability to quickly reduce its leverage through this agreement. Rodgerson stated, "This will allow Azul to rapidly decrease its debt ratio." He noted that cost-cutting measures may involve discussions with various partners, including leasing companies and manufacturers such as Embraer, Airbus, GE, and a division of RTX, Pratt & Whitney.
Acknowledging that the agreements will dilute existing shares, Rodgerson downplayed concerns by emphasizing the benefits of holding shares in a stronger company. "Of course, there will be dilution, but it will be dilution of a much stronger company. It is better to have a small piece of a much larger pie," he remarked.
Additionally, Azul committed to improving its cash flow by $150 million over the next 18 months by reducing its obligations to leasing companies and equipment manufacturers.
This announcement follows reports from last week about Azul negotiating with various parties, including current bondholders and the lender Jefferies, to raise $400 million in new capital through debt financing. These discussions have now culminated in the final agreement announced today.