Gol Linhas Aereas SA today (25 January) requested bankruptcy protection under Chapter 11 in the US Bankruptcy Court for the Southern District of New York. The Brazilian airline has a financing commitment for USD 950m in debtor-in-possession (DIP) financing from members of an ad hoc group of bondholders of Abra Group, the holding company for the operations of Gol and Colombia’s Avianca.

Debtwire Dockets: Gol Linhas Aereas Inteligentes SA (2023)

Debtwire Dockets Gol Linhas Aereas SA (Chapter 11)

The company

Gol is one of Brazil’s largest domestic airlines by market share and a leading low-cost carrier in South America. It initiated operations in 2001, when entrepreneur Constantino de Oliveira Junior pioneered the low-cost carrier concept in Brazil.

In its petition, Gol mentions more than 14,000 employees, a fleet of 141 aircraft, and destinations including Brazil, South America, the US and the Caribbean.

On 11 May 2022, the main shareholders of Avianca and Gol reached an agreement to create the Abra Group, placing their brands under a single holding company.

In February 2023, Gol obtained a commitment from Abra to invest in senior secured notes and exchangeable senior secured notes due 2028. Each is secured by the Smiles mileage program brand and certain intellectual property. A portion of the commitment came from members of an ad hoc group of secured and unsecured bondholders of Gol.

The debt

According to Gol’s 3Q23 statements, it had BRL 20.2bn (USD 4.1bn) in lease debt, bonds and loans, and BRL 993.7m in cash. Adjusted net-debt to LTM EBITDA was 5.5x.  

Source: Gol 3Q23 earnings report 

Gol has seven series of bonds issued in the international markets: USD 650m 2026 8% senior notes; USD 650m 2025 7% senior notes; USD 425m 3.75% 2024 exchangeable senior notes; USD 200m 8.75% perpetual bonds; USD 1.428bn 18% 2028 senior notes; USD 136.7m 5% 2026 notes; and USD 70m 3% 2025 notes.

At the Abra level, there is the USD 1.43bn 18% senior secured 2028 bond.

Gol has two domestic-market bonds: the BRL 563.3m seventh series paying the CDI benchmark rate plus 4.5%, maturing in October 2024; and the BRL 610.2m eighth series, also paying CDI plus 4.5% and due October 2024.

The largest listed creditor is bond trustee Bank of New York Mellon.

Source: Debtwire Restructuring Database 

The descent

Gol cites the prolonged effects of the COVID-19 pandemic as the primary motivation for its petition. It previously had challenges with debt, including an out-of-court restructuring involving its international bonds in 2016.

Beginning in March 2020, COVID-19 ravaged air travel around the world, reducing demand and destroying cash generation. Several Latin American peers would require Chapter 11, including Avianca, but Gol and its largest Brazilian competitor Azul managed to avoid an in-court restructuring.

Gol engaged in several transactions in 2020 and 2021, and was able to renegotiate lease agreements, postponing maturities. It raised USD 200m through the sale of 8% 2026 senior secured notes in December 2020.

However, an increase in lease payments more recently, along with rising interest rates in the US and Brazil, have pressured free cash flow. In contrast to Latin American peers that had to go through Chapter 11, Gol never completed a full renegotiation of lease obligations.

The airline mentions that several post-pandemic factors contributed to its liquidity shortage, including high fuel prices, unfavorable USD/BRL FX variation and delays in aircraft delivery.

Gol obtained a USD 200m equity investment from American Airlines in February 2022.

In May 2022, Gol and Avianca announced their plan to combine operations, creating the Abra Group to control the two airlines. It would also include Viva’s operations in Colombia and Peru and a minority stake in Chile’s Sky. There would also be an investment of USD 350m in Abra shares from certain investors.

Gol’s Constantino de Oliveira Junior became CEO of Abra and Avianca’s Roberto Kriete its chairman. Gol CEO Celso Ferrer ascended to his position in July 2022.

In December 2022, Gol issued USD 196m in subordinated secured amortizing notes due 2025 and 2026. In March 2023, Gol completed the transfer of shares for the merger and the private investment by Abra through the USD 1.4bn senior secured notes due 2028.

As liquidity continued to be pressured, Gol hired Seabury Capital as an advisor in December 2023, to address its capital structure. Abra followed by hiring Rothschild. Gol hired additional advisors in late December, and Abra bondholders made hirings.

At the beginning of 2024, the market began to speculate that Gol would need to file for Chapter 11 if it was unable to renegotiate debt with lessors. Its lease expenses represented a particularly heavy burden compared to peers. Also, an approximately USD 12m coupon payment on the 2025 bonds was due 31 January.

On 10 January, Abra representatives met bondholders and signed NDAs. Holders of Gol’s bonds began to hire advisors in January.

On 25 January 2024, Gol requested Chapter 11.

In a press conference on 25 January to discuss the filing, Ferrer said the debt restructuring was necessary due to the COVID-19 pandemic crisis and delays in aircraft deliveries. The CEO noted that Gol has been negotiating with aircraft lessors, and many of them are supporting the company in the Chapter 11 filing. Gol has 25 aircraft lessors in total, he said, without specifying how many supported the filing.

Ferrer said the Chapter 11 proceedings will principally involve lessors and international creditors.

The case

Gol and its subsidiaries voluntarily filed for Chapter 11 in the Southern District of New York.

In a press release, the airline said it entered into a financing commitment for USD 950m in DIP financing from members of an ad hoc group of Abra bondholders, as well as certain other Abra bondholders. According to Ferrer’s remarks, only holders of the Abra bonds issued are taking part in the DIP loan.

Gol planned to seek access to this funding as part of its first day hearing, which remained to be scheduled, it said. As of the evening of 25 January, a hearing in the case appeared on Judge Martin Glenn’s calendar for 10am ET on 26 January.

The advisors