Brazil’s GOL to issue $73.5 million notes in exchange for five series

By Susanna Moon

Chicago, July 5 – GOL Linhas Aereas Inteligentes SA subsidiary GOL LuxCo SA exchanged five series of notes in the offer that ran for nearly two months until 11:59 p.m. ET on July 1.

As previously reported, GOL LuxCo offered new notes and cash in exchange for the 7½% senior notes due 2017 issued by GOL Finance Inc., the 9¼% senior notes due 2020 issued by GOL Finance, the 8 7/8% senior notes due 2022 issued by GOL LuxCo, the 10¾% senior notes due 2023 issued by GOL LuxCo and the 8¾% perpetual notes issued by GOL Finance.

Holders tendered $174,745,000 principal amount of notes, or $27,036,000 of 2017 notes, $41,039,000 of 2020 notes, $46,270,000 of 2022 notes, $14,301,000 of 2023 notes and $46,099,000 of perpetuals, according to a company press release.

In exchange, GOL expects to issue $73.5 million principal amount of new notes, or $14.1 million of new 2018 notes, $41.3 million of new 2021 notes and $18.1 million of new 2028 notes with settlement expected to occur as early as July 7 and no later than July 11.

The exchange will cut GOL's total debt by $101.2 million, with a cash use of $13.9 million, and save $9.3 million in annual cash interest expenses, the company added.

“Together with the renegotiation of the aircraft leases, amendments to the terms of the Brazilian debentures and other important liquidity measures, the exchange offers provide improvements to GOL's capital structure and help ensure that the company emerges from the current Brazilian political and economic crises in the best competitive position,” the company said in the release.

“These improvements are particularly important in helping GOL continue to take the necessary measures to reduce capacity and costs until the Brazilian economy and airline industry recover.”

During the exchange, GOL said it contacted more than 150 holders.

Payment of interest and principal on the new notes to be issued in the exchange will be secured by collateral that has been valued at $222.7 million by an independent appraisal firm, representing a principal coverage ratio of more than 3 times, the company noted.

The new notes will be effectively senior to the old notes, to the extent of the value of the collateral provided to holders of the new notes.

To holders of 2017 notes, GOL will pay an exchange amount of up to 72.5% of par with 21% paid in cash and the rest in new 2018 notes. For the 2020 notes, 2022 notes and 2023 notes, GOL said it will pay an exchange amount of up to 55% of par with 7% paid in cash and the rest in new 2021 notes. For the perpetuals, GOL will pay an exchange amount of up to 45% of par in new 2028 notes.

GOL said that it also has raised the interest rate to 9½%, with 8½% payable in cash and 1% in kind, from 8½%.

More details

The exchange offer began May 3 and had been set to end at 11:59 p.m. ET on June 1 and was extended several times, as well as amended with incentives added throughout the offer.

As noted before, the company faced backlash from some noteholders, who formed an ad hoc group on April 26. They hold 25% of the outstanding unsecured notes issued by GOL Finance, GOL LuxCo and VRG Linhas Aereas SA and more than 50% of the notes due 2022.

In the most recent extension, the company added that it was “giving the holders of new 2021 notes and new 2028 notes the opportunity to benefit from improvement in the company’s performance, by providing for a one-time payment of an additional 13.5% of the face value of the new 2021 and new 2028 notes if on or after Dec. 31, 2017, GOL's EBIT exceeds R$800 million for the preceding four fiscal quarters.”

Also, if holders exchange more than 60% of the aggregate principal amount of the existing notes, then they will receive an additional amount of new notes equal to 2.5% of the par amount of the 2017 notes and equal to 5% of the par amount of the old 2020, 2022, 2023 and perpetual notes.

If there is a change in the company's voting control before 2018, holders of the new 2021 notes will receive a premium of 50% of the par amount of the then outstanding new 2021 notes, comprising 10% in cash and 40% in new 2021 notes, and holders of the new 2028 notes will receive a premium of 50% of the par amount of new 2028 notes, comprising 10% in cash and 40% in new 2028 notes.

The maturity of the new notes to be exchanged for 2020, 2022 and 2023 notes was shortened to July 2021.

Exchange terms

Holders will receive up to the following amounts in exchange for each $1,000 principal amount:

• For the 2017 notes: $725, consisting of $210 in cash and $515 principal amount of new 2018 notes, including the participation premium of $25 in new 2018 notes, compared with the initial offer of $650, or $195 in cash and $455 in notes;

• For the 2020 notes: $551, consisting of $70 in cash and $481 principal amount of new 2021 notes, including the improvement premium of $51 in new 2021 notes and the participation premium of $50 in new 2021 notes, compared with the initial offer of $300, or $60 in cash and $240 in notes;

• For the 2022 notes: $551, consisting of $70 in cash and $481 principal amount of new 2021 notes, including the improvement premium of $51 in new 2021 notes and the participation premium of $50 in new 2021 notes, compared with the initial offer of $300, or $60 in cash and $240 in notes;

• For the 2023 notes: $551, consisting of $70 in cash and $481 principal amount of new 2021 notes, including the improvement premium of $51 in new 2021 notes and the participation premium of $50 in new 2021 notes, compared with the initial offer of $300, or $60 in cash and $240 in notes; and

• For the perpetual notes: $447 principal amount of new 2028 notes, including the improvement premium of $47 new 2028 notes and the participation premium of $50 in new 2028 notes, compared with the initial offer of $250 notes.

The new notes will be guaranteed by the company and VRG Linhas Aereas SA and will be secured by a first priority security interest in all spare parts owned now or in the future by VRG and, as a result, structurally senior to all of GOL's existing and future unsecured debt, including the old notes and senior to any future subordinated debt that GOL may incur. Old notes will not get the benefit of the collateral securing the new notes, and holders who do not participate in the exchange will be effectively subordinated to the new notes, to the extent of the value of the collateral securing the new notes, the company said.

More details

Holders who tendered notes for exchange by 5 p.m. ET on May 27, the early participation date, will also receive the following premiums for each $1,000 principal amount in addition to the exchange payments:

• For the 2017 notes: $15 in cash and $35 principal amount of the new 2018 notes;

• For the 2020 notes: $10 in cash and $40 principal amount of the new 2021 notes;

• For the 2022 notes: $10 in cash and $40 principal amount of the new 2021 notes;

• For the 2023 notes: $10 in cash and $40 principal amount of the new 2021 notes; and

• For the perpetuals: $50 principal amount of the new 2028 notes.

As noted before, the exchange offers are conditioned upon at least 95% of the principal amount of outstanding old notes being tendered for exchange. No offer is conditioned upon any of the other exchange offers being consummated.

The airline is based in Sao Paulo.

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