A cross-practice team at global law firm Hogan Lovells has advised Azul S.A. (NYSE: AZUL) (“Azul”), the largest airline in Brazil by number of flight departures and cities served, in a series of groundbreaking recapitalization and restructuring transactions supported by an ad hoc group of holders of existing secured bonds and convertible debentures. These transactions provided Azul with significant additional funding and included agreements to consensually convert existing second out secured debt into equity through multiple phases of equity and exchangeable debt issuances, among other transactions to improve Azul’s liquidity and cash generation and reduce leverage.
The transactions included the following components:
• US$525 million of Floating Rate Superpriority PIK Toggle Notes due 2030 issued by Azul Secured Finance LLP (the “Issuer”) and guaranteed by Azul and substantially all of its subsidiaries, the proceeds of which were used in part to fund the repayment of US$150 million funding provided in October 2024. This superpriority funding is secured on an extensive collateral package that is shared with first out and second out secured debt through intercreditor and collateral sharing arrangements.
• Exchange offers and solicitations of consents through which the Issuer exchanged existing first out and second out secured notes for US$1.05 billion of 11.930% Senior Secured First Out Notes due 2028, US$238 million of 11.500% Senior Secured Second Out Notes due 2029, and US$547 million of 10.875% Senior Secured Second Out Notes due 2030.
• The terms of the US$784.6 million of newly issued second out secured notes provide for the mandatory partial equitization into preferred shares (including represented by ADRs), with 35.0% being equitized no later than April 30, 2025, 12.5% being equitized following the issuance of equity raising net proceeds of at least US$200 million, and 52.5% being equitized through the issuance of exchangeable bonds that are mandatorily exchangeable by Azul in certain circumstances.
• Binding definitive agreements with Azul’s lessors, OEMs and other suppliers, enhancing additional cash flow improvements of over US$300 million across 2025, 2026 and 2027.
• Elimination of equity issuance obligations owed to Azul’s lessors and OEMs totaling approximately US$550 million in exchange for 94 million new preferred shares (Azul’s publicly traded equity) in a one-time issuance to be completed in the first quarter of 2025.
• The negotiated exchange and cancellation of certain existing unsecured 2030 notes held by certain lessors and OEMs, with the remaining 2030 notes to be exchanged for new unsecured notes due in 2032 and an option to pay interest in kind.
The Hogan Lovells deal team was led by partner Jonathan Lewis (Capital Markets, São Paulo), with support from partners Isabel da Costa Carvalho (Capital Markets, São Paulo), Richard Aftanas (Capital Markets, New York), Scott Lilienthal (Tax, Pensions & Benefits, Washington, D.C.), Rupa Briggs (Capital Markets, New York), and Liz Banks (Capital Markets, Washington, D.C.), visiting international lawyer Ana Pongeluppi (M&A, New York), senior associates David Wallace (Capital Markets, New York), Thomas Petrie (IP, Colorado), and Chasse Osborn (Tax, Pensions & Benefits, Boston), and associates Felipe Lacerda (Capital Markets, São Paulo) and Zhouanan Du (Capital Markets, New York).
