(Bloomberg) -- Azul’s shares jumped 16% in Sao Paulo trading after the Brazilian air carrier reached an agreement with its lessors and parts suppliers that helps cut its debt load.
The deal allows the airline to slash 3 billion reais ($547 million) of debt in exchange for 100 million new preferred shares, according to a regulatory filing.
“This agreement with lessors should ease the negotiations with other creditors,” Bradesco BBI analyst Victor Mizusaki writes in a note. “The next steps for Azul’s liability management include the raising of additional capital and possibly lengthening the bond maturities.”
Azul has been attempting to manage higher debt levels and expenses inflated by a weaker Brazilian real, including dollar-denominated lease payments and fuel costs tied to the greenback. Investors have dumped the company’s stock this year, with shares dropping about 53%, according to data compiled by Bloomberg.
The troubled carrier has been mulling several options to address its near-term debt obligations, which went from an equity offering to contemplating a Chapter 11 bankruptcy filing. It has tried to avoid seeking protection from creditors.
Azul’s ratings were downgraded by Fitch Ratings in September to CCC from B-, citing heightened refinancing risks and weaker cash flow amid a depreciation of the Brazilian real. Moody’s Ratings and S&P Global Ratings have also downgraded Azul in the last month.
“The successful renegotiation of liabilities will help strengthen both Azul’s cash generation and capital structure, allowing the company to seek to reach break-even, initially expected for 2024, but delayed due to the macroeconomic scenario, mainly influenced by oil prices and exchange rates,” said Ygor Araujo, an analyst at Genial Investimentos.
Araujo added that other challenges still remain, such as rising fuel costs, which pressure the company’s costs.
--With assistance from Leda Alvim.
(Recasts to add stock move, analyst comments.)
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