Cleary Gottlieb acted in Azul's $2.25 Billion Out-of-Court Restructuring for Financial Reinforcement

Cleary Gottlieb acted in Azul's $2.25 Billion Out-of-Court Restructuring for Financial Reinforcementclear

Cleary Gottlieb, an American law firm, played a crucial role in representing an ad hoc group of bondholders who held bonds issued by Azul S.A., a prominent Brazilian airline. This legal representation was instrumental in facilitating an out-of-court restructuring of approximately $1.5 billion of debt, coupled with a successful new money raise amounting to $800 million.

These transactions were integral components of a comprehensive restructuring plan aimed at optimising Azul's capital structure and bolstering its liquidity position.

On July 14, 2023, Azul executed the restructuring of its bonds through an exchange offer and consent solicitation. In this process, Azul exchanged $294.22 million in principal amount of 5.875 per cent senior notes due 2024 for $294.22 million in principal amount of 11.50 per cent senior secured second-out notes due 2029. Additionally, $568.25 million in principal amount of 7.25 per cent senior notes due 2026 were exchanged for $568.22 million in principal amount of 10.875 per cent senior secured second-out notes due 2030. Overall, a significant 86 per cent of the principal amount of Azul's 2024 and 2026 notes was exchanged for 2029 and 2030 notes, respectively.

As part of its comprehensive restructuring plan, Azul is set to issue $800 million of 11.93 per cent senior secured first-out notes due 2028. The pricing of these notes was completed on July 13, 2023, and the settlement was scheduled for July 20, 2023.

In addition to the exchange offer and new money raise, Azul's out-of-court restructuring encompasses essential elements, including capitalization, deferrals of significant lease and original equipment manufacturer (OEM) liabilities, and the restructuring of Azul's senior convertible debt.

The exchanged 2029 and 2030 notes, as well as the newly issued 2028 notes, all originate from an Azul finance subsidiary and carry guarantees from the Azul parent entity and key operating subsidiaries. These subsidiaries include Azul Linhas Aéreas Brasileiras S.A., IntelAzul S.A. (IntelAzul), its TudoAzul loyalty program subsidiary, and ATS Viagens e Turismo Ltda. (Azul Viagens), its travel package subsidiary, and Azul IP Cayman Holdco Ltd., along with Azul IP Cayman Ltd., which are newly-incorporated IP subsidiaries operating in a bankruptcy remote structure.

Moreover, these notes are supported by a common collateral package, consisting of specific receivables generated by TudoAzul and Azul Viagens, as well as certain brands, domain names, and other intellectual property utilised by the Azul airline business (excluding Azul Cargo), TudoAzul, and Azul Viagens.

In terms of security priority, the 2028 notes hold a first-out position, while the 2029 and 2030 notes have a second-out position behind Azul's secured lease obligations, convertible debentures, and the 2028 notes. Additionally, the 2029 and 2030 notes carry a first-priority lien over the majority of Azul's receivables from its Azul Cargo business unit, following a priority basket designated for future debt secured by the Azul Cargo collateral.

Cleary played a key role in organising the ad hoc bondholder group, representing an impressive majority of over 70 per cent of Azul's bonds spread across two distinct series with different maturities and rates. Their expertise was instrumental in designing an effective out-of-court restructuring plan that addressed the varying objectives of the bondholders.

Furthermore, Cleary actively participated in negotiating, documenting, and executing the restructuring terms. This comprehensive approach included the establishment of collateral, adjustments to coupons, a par-for-par exchange, a cash paydown for existing 2024 note holders, and the implementation of the diverse covenant, collateral, and inter-creditor protections to safeguard bondholders' interests.

In recognition of their integral role, the ad hoc group, with Cleary's assistance, received preferential participation in the new money raise, further reinforcing the successful outcome of the restructuring process.