Azul’s $2.25 Billion Out-of-Court Restructuring

Cleary Gottlieb represented an ad hoc group of bondholders of bonds issued by subsidiaries of Azul S.A. (Azul), a Brazilian airline, in the out-of-court restructuring of approximately $1.5 billion of indebtedness and a new money raise of $800 million.

These transactions formed part of a comprehensive restructuring plan to optimize Azul’s capital structure and increase its liquidity position.

The restructuring of Azul’s bonds was carried out through an exchange offer and consent solicitation, which settled on July 14, 2023. Azul exchanged (i) $294.22 million in principal amount of 5.875% senior notes due 2024 for $294.22 million in principal amount of 11.50% senior secured second-out notes due 2029 and (ii) $568.25 million in principal amount of 7.25% senior notes due 2026 for $568.22 million in principal amount of 10.875% senior secured second-out notes due 2030. In aggregate, 86% of the principal amount of Azul’s 2024 notes and 2026 notes has been exchanged for 2029 notes and 2030 notes.

Also as part of its restructuring, Azul is expected to issue $800 million of 11.93% senior secured first-out notes due 2028. Pricing occurred on July 13, 2023, with settlement expected to occur on July 20, 2023. In addition to the exchange offer and new money raise, Azul’s out-of-court restructuring also includes important capitalization and deferrals of significant lease and OEM liabilities and the restructuring of Azul’s senior convertible debt. 

The exchanged 2029 and 2030 notes and new money 2028 notes are all issued by an Azul finance subsidiary and guaranteed by the Azul parent entity and key operating subsidiaries, including Azul Linhas Aéreas Brasileiras S.A., IntelAzul S.A. (IntelAzul), its TudoAzul loyalty program subsidiary, ATS Viagens e Turismo Ltda. (Azul Viagens), its travel package subsidiary, and Azul IP Cayman Holdco Ltd., and Azul IP Cayman Ltd., its newly-incorporated IP subsidiaries that own Azul’s IP in a bankruptcy remote structure. The notes also share a collateral package comprised of certain receivables generated by TudoAzul and Azul Viagens and certain brands, domain names and other intellectual property used by the Azul airline business (excluding Azul Cargo), TudoAzul, and Azul Viagens. The 2028 notes are secured on a first-out basis, while the 2029 and 2030 notes are secured on a second-out basis behind Azul’s secured lease obligations, convertible debentures and the 2028 notes. The 2029 and 2030 notes are also secured by a first priority lien over the majority of Azul’s receivables from its Azul Cargo business unit, behind a priority basket for future debt secured by the Azul Cargo collateral.

Cleary helped organize the ad hoc bondholder group which comprised over 70% of Azul’s bonds across two separate series with different maturities and rates and assisted in designing the out-of-court restructuring to address bondholders’ differing objectives. Cleary helped negotiate, document, and implement the terms of the restructuring, which included the granting of collateral, increased coupons, a par-for-par exchange, a cash paydown for holders of existing 2024 notes, and various covenant, collateral, and intercreditor protections for bondholders. The ad hoc group also received preferential participation in the new money raise.