GOL adds collateral to exchange; new notes to be backed by spare parts

By Susanna Moon

Chicago, May 16 – GOL Linhas Aereas Inteligentes SA subsidiary GOL LuxCo SA now will provide collateral in its private exchange, the latest in a string of offer add-ons aimed at winning over noteholders in the face of backlash by some.

Investors who tender for exchange now will receive new notes guaranteed by spare parts owned by GOL, according to a company announcement.

The company said it has hired Morten Beyer & Agnew, a consultant, to conduct an appraisal of the collateral and valued it at about $223 million.

The spares are used in the operation of GOL’s fleet of Boeing 737-700 and 800 Next Generation aircraft, the release noted.

As announced May 13, GOL also added a soliciting dealer fee and attempted to quantify the premium that it is purportedly offering under its proposed exchange at about 10% to 50% to market value.

As previously reported, GOL LuxCo is offering new notes and cash in exchange for the 7½% senior notes due 2017 issued by GOL Finance Inc., the 9¼% senior notes due 2020 issued by GOL Finance, the 8 7/8% senior notes due 2022 issued by GOL LuxCo, the 10¾% senior notes due 2023 issued by GOL LuxCo and the 8¾% perpetual notes issued by GOL Finance.

The exchange offer began May 3 and will expire at 11:59 p.m. ET on June 1.

Friday add-ons

The company said last Friday that it will pay a soliciting dealer fee of $2.50 for each $1,000 principal amount of notes that are tendered and accepted for exchange to retail brokers that are designated by their clients to receive this fee.

The soliciting dealer fee will only be paid to each designated retail broker for each tendering eligible holder that submits notes with an aggregate principal amount of $300,000 or less.

Also on May 13, the company laid out the premium being offered, based on market prices, at about 50% for the notes due in 2017, at about 20% for the notes due 2020, 2022 and 2023 and at about 10% for the perpetual notes.

More holder protests

Meanwhile, a group of protesting noteholders said in a May 13 press release that GOL has “refused to enter into a dialogue” with the group and “simply abandoned any cooperative process with the noteholders.”

The holders formed an ad hoc group on April 26 and are opposed to the exchange offer. Between them they hold 25% of the outstanding unsecured notes issued by GOL Finance, GOL LuxCo and VRG Linhas Aereas SA and more than 50% of the notes due 2022.

The noteholder group objects to “the many inconsistencies” in the exchange offer, according to a release from law firm White & Case LLP, which is representing the investors.

“Notably, the notes rank pari passu with each other and are entitled to the same treatment as all other unsecured debt of GOL, yet GOL provides discriminatory treatment of certain notes and treats the unsecured debt of GOL held by other creditors more favorably than the notes,” the group said in the news release.

On May 6, GOL defended the exchange offer. Edmar Lopes, GOL’s chief financial officer, called it a “good and fair offer” and said it provides a premium to market value and collateral covering more than 100% of the new notes.

Exchange offer terms

In the exchange offer, GOL LuxCo is offering the following considerations for each $1,000 principal of the notes exchanged:

• For the 2017 notes, $210 cash and $490 principal amount of newly issued 8½% secured amortizing notes due 2018 issued by GOL LuxCo, which includes an early participation premium of $15 cash and $35 principal amount of new notes;

• For the 2020, 2022 and 2023 notes, $70 cash and $280 principal amount of new 8½% notes due 2022 issued by GOL LuxCo, which includes an early participation premium of $10 cash and $40 principal amount of the new notes; and

• For the perpetual notes, $300 principal amount of new 8½% notes due 2028 issued by GOL Finance, which includes an early participation premium of $50 principal amount of new notes.

To receive the early participation premium, holders must tender notes for exchange by 5 p.m. ET on May 17. Tendered notes may not be withdrawn after that deadline unless the issuer reduces the principal amount of notes subject to the exchange offers, reduces the exchange consideration or is otherwise required by law to permit withdrawals.

The new notes will be secured by a first-priority security interest in all spare parts owned by GOL. They will be structurally senior to all of GOL’s existing and future unsecured debt, including the old notes, to the extent of the value of collateral securing the new notes and, in the case of the new notes due 2028, until Jan. 21, 2022 and senior to any future subordinated debt that GOL may incur.

The old notes will not get the benefit of the collateral securing the new notes, and holders of old notes who do not participate in the exchange offers will be effectively subordinated to the new notes, to the extent of the value of the collateral securing the new notes.

The exchange offers are conditioned upon at least 95% of the principal amount of outstanding old notes being tendered for exchange. No offer is conditioned upon any of the other exchange offers being consummated.

GOL said in recent years it has faced a challenging economic scenario, including political instability, contraction of the Brazilian economy, sharp devaluation of the Brazilian real and inflationary pressures and high interest rates.

Additionally, GOL and the Brazilian aviation sector were affected by decreased demand, industry overcapacity, increased labor costs, scarce and expensive credit, ratings decline, operating cost increase, high financial expenses and reduced payment capacity.

GOL said the exchange offer is part of a series of initiatives it embarked on in the past year to comprehensively address its liquidity and capital structure concerns.

D.F. King & Co., Inc. (212 269-5550 or 866 796-6898) is the information agent and the exchange agent.

The airline is based in Sao Paulo, Brazil.

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