Brazilian airlines Azul, Gol surge after financing deals ease cash woes

Brazil’s battered airlines got some relief on Monday after striking agreements that eased investors’ concern over their liquidity amid deteriorating credit conditions in their home market. 

Azul SA’s American depositary receipts surged as much as 70% to $7.06 in New York, the most intraday on record, and bonds due in 2026 climbed 13 cents to 65 cents on the dollar. The moves follow an agreement the company struck with most lessors allowing it to reduce its payments in exchange for a mix of stocks and bonds, according to filing published Sunday.

The deal “seems to be a powerful vote of confidence in the carrier’s long-term staying power and cash-generating ability,” Citigroup Inc. analyst Stephen Trent wrote. 

On Friday, Gol announced a debt restructuring with Abra Group Ltd., a holding company that will control operations of Gol and Avianca Group International Ltd., and a group of creditors. The transaction provides the company with $451 million in cash, lengthens its debt profile and should ease negotiations with lessors, Bradesco BBI analyst Victor Mizusaki wrote in a note dated March 5. 

Gol’s ADRs climbed as much as 29% to $2.65, according to data compiled by Bloomberg.

Despite the agreements, bonds from both companies trade deep in distressed levels as investors weigh refinancing risks and high borrowing costs in Brazil. 

Gol’s debt is the worst performer in the region over the last month, handing investors losses of 27% over that period, according to a Bloomberg index. Azul’s dollar bonds also rank among the worst in Latin America, losing more than 15% over the span. 

Rating firms last month downgraded the companies, citing the fact that the local market had grown more restrictive after retailer Americanas SA filed for bankruptcy protection.