Shearman & Sterling LLP in New York and Pinheiro Neto Advogados in São Paulo have helped Brazilian airline Azul issue convertible debentures for US$300 million to replace an alternative funding proposal from local development bank BNDES.

Hogan Lovells LLP in New York and Machado Meyer Advogados in São Paulo advised the anchor investors, Knighthead Capital Management and Certares Management. The deal closed on 12 November.

The debentures will mature in October 2025 and can be converted to preferred shares in Azul at any time prior to the maturity date.

The issuance replaced an alternative funding proposal from Brazil's development bank. Azul and BNDES had agreed in September that the bank was going to provide a 2 billion reais (US$373 million) financing from its emergency programme created to support sectors affected by the covid-19 pandemic. The proposed financing structure would have made BNDES an anchor investor for up to 60% of the offering.

To tackle the economic impact of covid-19 in Brazil, the minister of economy, Paulo Guedes, announced a US$150 billion stimulus package back in March. At least US$9 billion was earmarked for the airline industry, which was hit hard by travel restrictions and lockdowns. As part of the programme, companies were offered debt that could be converted into equity.

Many of Latin America's big airlines have struggled during the pandemic. Colombian airline Avianca was first out to file for Chapter 11 proceeding in a New York bankruptcy court in May, while LATAM Airlines followed later the same month. Mexico's flagship carrier Aeroméxico applied for Chapter 11 protection in late June.

Counsel to Azul

Shearman & Sterling LLP
Partner Stuart Fleischmann and associate Robert Powel in New York, and partner Roberta Cherman in São Paulo

Pinheiro Neto Advogados
Partners Ricardo Russo, Guilherme Sampaio Monteiro and Jorge Lopes, and associates Rafael Gaspar, Camila Derisio, Paula Rodrigues, Julia Barbosa Campos and Nina Goldman Cavalcanti in São Paulo

Counsel to Knighthead Capital Management and Certares Management

Hogan Lovells LLP
Partners Stuart Morrissy, Stacey Rosenberg and Mehtap Cevher Conti, and associate Meredith Hines in New York

Machado Meyer Advogados
Partners Mauro Cesar Leschziner, Bruno Janikian Racy and Bruna Marrara Martine, and associates Luis Filipe Gentil Pedro, Roberto Kerr Cavalcante BonomettiNatalia Fava De Almeida and Fernanda Leopoldo E Silva Abdalla in São Paulo

(Latin Lawyer - 01.12.2020)