(Bloomberg) -- The largest shareholder of ailing Brazilian airline Gol Linhas Aereas Inteligentes SA is nearing a deal to raise $1.3 billion of funds from investment firm Castlelake LP to stave off the risk of defaulting on its bonds.
Abra Group Ltd., which also owns Colombian airline Avianca Holdings SA, outlined Castlelake’s proposal to its investors last week, according to people familiar with the matter, who asked not to be named because they aren’t authorized to talk about it.
Under the plan, the investment firm would refinance Abra’s secured bonds due 2028, which could default after Gol raised a bankruptcy loan as part of its Chapter 11 procedure in the US, the people said.
A representative for Abra said the details of the plan have been made available to bondholders, but declined to comment further. Representatives for Castlelake didn’t return emails seeking comment.
Castlelake is emerging as one of the biggest private investors in the aviation industry. The firm has recently become the co-owner of Scandinavian airline SAS, in partnership with Air France-KLM, after committing fresh funding in its bankruptcy process, and provided a loan to United Airlines in 2023. It’s now seeking to expand to Latin America, where carriers have struggled to bounce back from the Covid-19 shock.
Castlelake offered to refinance the bonds at a premium above face value with a five-year term loan, the people said. The notes trade at 105 cents on the dollar, according to data compiled by Bloomberg.
The new debt would have a payment-in-kind interest of as much as 16% or an 8% PIK plus 6% cash coupon, the people said. Abra’s convertible bondholders, whose support is key to complete the transaction, are largely backing the deal, they said.
As part of the refinancing, Castlelake would receive warrants, but the equity will remain intact. An alternative restructuring proposal made by secured bondholders would have seen them getting a stake in the company, the people said.
Abra was formed in 2022 as Gol and Avianca struggled to return to profit. While Avianca went through a bankruptcy process in the US already in 2020, Gol filed earlier this year and is now seeking $1.5 billion of fresh equity to repay its debtor-in-possession loans. The bankruptcy loan has primed Abra’s secured bonds, potentially triggering a default.
Gol is also considering a merger with Azul SA, its major rival in Brazil. The government approved an aid plan for struggling airlines and it’s debating whether to allow Gol accessing funds through a private partner.
--With assistance from Rachel Gamarski, Jill R. Shah and Julia Leite.
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