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Brazil’s Gol is losing its wings

Gol Linhas Aereas Inteligentes is looking to restructure its dollar denominated debts amid a worsening fiscal situation, and investors on some of its debts may have to accept heavy losses. There are plans in Brazil to stabilise the country’s currency, the real, which would provide some breathing space for the company, but it is still far from certain whether this will come to fruition.

May 5, 2016 // 8:13AM

Gol has planned for a restructuring of its debt that if successful would see bondholders take haircuts of up to 70% on their current holdings, as the company struggles to service its dollar debt amid an increasingly weak real.

A stabilisation in the real would provide some relief to the company in servicing its dollar debts. “There are plans in Brazil to stabilise the real and limit volatility, however these could easily fall through as there is substantial uncertainty in Brazil,” said Bruno Bastit, Director at Sodali.

Brazil’s second largest airline plans to swap US$780mn of dollar denominated unsecured notes maturing between 2017 and 2023, including a perpetual bond, for secured notes due in 2018, 2022 and 2028 with a yield of 8.5%.

Under the restructuring, Gol would pay between 35% and 70% of the principal on the bonds depending on their maturing, with the higher percentage being paid for the notes that mature sooner. The company will pay 30% of the principal to holders of its perpetual bond.

The airline’s outstanding liabilities, which include aircraft leases, amounted to BRL17bn (US$4.8bn) in December last year. Bastit noted that the airline industry in the country was performing badly as a result of broader economic headwinds.

The restructured debt would be backed by Gol and its subsidiary, VRG Linhas Aereas, which would give the debt priority over the company’s other existing or future unsecured debts. The company also plans to use certain pieces of equipment as collateral for the restructured debt.

The company will also look to renegotiate loans and aircraft leases. It is already in talks with Banco do Brasil and Bradesco over the restructuring of debt with these entities.

The company’s US$325mn worth of bonds due in 2022 fell in price by 41% to 25 cents to the dollar. Yields on these securities have risen 18.8% to 48.48%.

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