Azul Rushes to Raise Cash to Seal Aircraft Lessor Deal and Slash Debt
(Bloomberg) -- Azul SA is rushing to raise cash as part of a deal it reached last week with its aircraft lessors, a key step in the Brazilian carrier’s attempt to again rework its debt.
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The company was able to strike an agreement with lessors and parts suppliers that reduces its debt by 3 billion reais ($540 million) in exchange for 100 million new preferred shares. The announcement sent shares rallying as much as 22%.
But the boost proved short-lived. The stock eked out gains of less than 1% for the week, and remains down more than 60% this year, the worst performance on Brazil’s benchmark Ibovespa index.
While welcome by investors, the deal doesn’t provide any of the fresh capital Azul needs to bolster liquidity. And the agreement itself is contingent on the company obtaining new financing, said Carolina Chimenti, an analyst at Moody’s Ratings.
“Getting new money remains crucial,” she said. The renegotiation “was the first step toward avoiding a Chapter 11 filing and the company is still at work.”
The situation underscores Azul’s delicate financial position. It’s the only carrier of the three that dominate Latin America’s largest air travel market to have avoided filing for bankruptcy protection. But it has struggled to shore up its balance sheet and deal with the impact of a weak Brazilian real, despite having renegotiated with lessors and carrying out a debt swap that pushed back maturities.
About $68 million comes due in bond payments this month, according to Moody’s, and analysts have said the company can manage those. As of June 30, Azul had 1.5 billion reais ($268 million) of debt maturing in the short term and around 1.4 billion reais readily available cash, according to Fitch Ratings.
Bonds due in 2030 have handed investors some of the worst losses this year in a Bloomberg index of emerging-market corporate debt. Notes maturing in 2028 have gained 2.7% when accounting for price changes and interest payments, but still trail peers, according to data compiled by Bloomberg.
In striking the debt-for-equity swap with lessors and suppliers, Azul aims to open the door for additional financing, including raising as much as $400 million of debt through its cargo unit, people familiar with the matter said. Those attempts, though, have hit snags over questions about what can be used for collateral, the people said, asking not to be named because the information isn’t public.
Meanwhile, the company remains in conversations with its dollar bondholders for additional financing, the people added. It could also tap a recently approved, 5 billion-real government loan program aimed at assisting airlines.
Azul declined to comment.
Pedro Bruno, an analyst at XP Investimentos, said the agreement with lessors is a positive that allows Azul to avoid a follow-on share offer that would have further diluted shares.
Still, Amalia Bulacios, an analyst at S&P Global Ratings, said the company needs to improve liquidity, which will be challenging in a tight market. S&P cut Azul’s score to CCC+ in September, one of three credit rating downgrades last month due largely to weak liquidity and refinancing risks.
“The capital structure of the company is a bit heavy,” she said.
Bloomberg reported in August that Azul has weighed options including a follow-on equity offering and filing for Chapter 11. Following the report, the company said in a regulatory filing that it was analyzing options, including the cargo unit debt sale and other “commercial solutions.”
“They don’t want to enter into Chapter 11, but if the company is unable to raise the money, then I can’t rule out that Chapter 11 is an option,” said Josseline Jenssen, a credit analyst at Lucror Analytics.
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