GOL monetises Smiles brand raising $1.4bn with Abra Group

Brazilian airline GOL has arranged $1.4bn private placement financing, with Abra Group, a holding company that will control GOL and fellow carrier Avianca.

Abra will invest up to $451 million cash into the business, and contribute $1.077bn face value of GOL bonds "at a $312.6 million discount to par", as well as receiving a consideration in the senior secured notes due 2028, which can be replaced on request with exchangeable senior secured notes (ESSNs) also die 2028.

The $1.4bn on aggregate total GOL senior secured notes mature in March 2028 and carry an interest rate of 18% of which 4.5% will be paid in cash and 13.5% paid in kind (PIK).

The notes are secured on a first-lien basis on the Smiles brand, intellectual property, customer lists, trademarks, the primary platform  infrastructure-related contracts and other agreements. Like other transactions that have monetised airline loyalty schemes, certain assets of the Smiles IP Collateral will be transferred to a wholly-owned Brazilian subsidiary (the IPCo) by July 2023, with all assets transferred to the new entity by the end of the year. The equity of the new entity is pledged to secure the GOL SSNs and ESSNs due 2028. GOL will enter into contractual undertakings with Abra and IPCo requiring that Smiles be GOL’s sole and exclusive loyalty program.

Also listed was a first lien pledge of all inter-company loans to GOL from its subsidiaries and affiliates and a pari passu lien on the intellectual property, brand and spare parts securing the GOL 8% SSNs due 2026.

GOL said participants included bondholders from an ad-hoc group that had earlier backed the refinancing, as well as other debt holders.

Certain shareholders of Abra have invested $172.5 million in cash, the ad-hoc group has invested $329.9 million in cash and the non ad-hoc group has invested $49.5 million in cash to support the transaction representing an aggregate cash investment of $551.9 million, GOL said. The ad-hoc group and the non ad-hoc group have delivered $1.077bn face value of GOL bonds to Abra at an average price of 71 cents.

The GOL bonds delivered by members of the ad-hoc group and the non ad-hoc group represent 83% of the SENs due 2024, 47% of the SUNs due 2025, 61% of the SSNs due 2026 and 10% of the perpetual notes.

GOL stated that the transaction between Abra and GOL represents “one of the largest completed liability management and comprehensive refinancing transactions in both the airline industry and the emerging markets”. The transaction also represents the tenth liability management or capital raising transaction that GOL has completed since the onset of the COVID-19 pandemic.

Abra was advised by Bank of America Securities, Evercore and Milbank, GOL was advised by Lefosse and the ad-hoc group was advised by Rothschild & Co., Dechert and Padis Mattar.