Brazil's Azul eyes fresh capital raising after debt deal with lessors

By Gabriel Araujo

SAO PAULO (Reuters) -Brazilian airline Azul is looking to raise fresh capital after it clinched a deal with lessors to scrap nearly $550 million in obligations, easing market concerns about its debt load, the firm's chief executive told Reuters on Tuesday.

Shares in the carrier jumped after it announced the eagerly anticipated deal with lessors and equipment manufacturers (OEMs), agreeing to give them an equity stake to eliminate some obligations.

"We had to solve this problem first and now we can raise capital," John Rodgerson said in an interview. "We can look forward and not backwards."

Azul now aims to raise about $400 million, Rodgerson said, potentially using subsidiary Azul Cargo as collateral.

The company, which dominates Brazil's airline industry along with LATAM and Gol, also counts on getting money soon from a credit line approved by the government to help local carriers.

"As we said, we were going to use Azul Cargo to raise debt - perhaps a convertible debt - to strengthen us and help us grow, knowing now that the money will not go to lessors as that matter has been addressed," Rodgerson said.

He noted the company has been in amicable talks with bondholders but there were "many people" willing to borrow Azul money, expanding the firm's options as it looks at "several types of debt" for a potential transaction.

'FUNDAMENTAL PIECE'

Azul late on Monday said it reached commercial agreements with lessors and OEMs holding about 92% of its existing equity issuance obligations to settle them with an equity stake.

Under the deal, lessors and OEMs agreed to eliminate obligations totaling some 3 billion reais ($544.64 million) and will receive, in exchange, up to 100 million new preferred shares of Azul in a one-time issuance.

Genial Investimentos analysts said the move, despite the shareholder dilution, was a "fundamental piece" in Azul's effort to strengthen cash generation and improve its capital structure, providing "significant" financial relief.

Reuters first reported last month that Azul was close to clinching the debt-for-equity swap with lessors.

Investors cheered the news, with Sao Paulo-traded shares of Azul jumping as much as 21.7% on Tuesday.

"The announcement removes the short-term overhang related to a potential Chapter 11 filing, which led to a 17-percentage-point underperformance since late August," JPMorgan analyst Guilherme Mendes said.

He referred to media reports that suggested the firm was considering a Chapter 11 filing. Mendes estimated the fresh deal to imply an equity dilution of around 23%, with the 100 million shares valued at 575 million reais as of Monday's closing.



Azul first struck a deal with lessors and OEMs in 2023 to give them up to $570 million in preferred shares valued at 36 reais each, part of a broader restructuring that also delayed debt maturities and raised additional capital.

But its shares had dropped more than 60% this year as it struggled with a weaker exchange rate and disastrous flooding in the key market of Porto Alegre, triggering the need for another restructuring.

Source: Investing.com