💥New Chapter 11 Bankruptcy Filing - Azul S.A.💥
South American airline files to shed $2b of funded debt.
On May 28, 2025, Brazil-based Azul S.A. ($AZUL) and nineteen affiliates (collectively, the “debtors”) filed chapter 11 bankruptcy cases in the Southern District of New York (Judge Lane). Founded in ‘08, by American-Brazilian-Cypriot and certified aviation fanatic David Neeleman,* the debtors are “… largest airline in Brazil in terms of departures and cities served, operating approximately 900 daily departures to 137 destinations and maintaining a network of 273 non-stop routes in Brazil.” Which is a measure that lets the debtors puff up their chests while avoiding admitting LATAM ($LTM) dunks on them by revenue (LTM’s $13b in ‘24 vs. AZUL’s $3.5b) and, you know, every financial metric that matters. But, nevertheless, the debtors are a big operation, having a fleet of 226 aircraft and over 16k employees.
Here’s Chief Institutional and Corporate Officer Fabio Barros to tell you why the debtors hauled themselves up from São Paulo:
“Following grueling negotiations and tremendous efforts from the Debtors and their key stakeholders, the Debtors commenced the Chapter 11 Cases to implement a comprehensive financial restructuring that, once effectuated, will (a) reduce funded debt by over $2.0 billion, (b) provide the Company with approximately $670 million of new capital to bolster liquidity during the restructuring process, and (c) provide up to approximately $950 million of new equity investments upon emergence to address the debtor in possession (‘DIP’) financing raised in the Chapter 11 Cases and to optimize the size and cost structure of Azul’s fleet and supply chain.”
Sick, parceiro, but what caused ya to do that? He tells us:
“Since 2020, Azul has encountered a series of compounded challenges stemming from the COVID-19 global crisis, which crippled the aviation industry. The pandemic caused a sharp market downturn, enforced travel restrictions, and diminished demand, resulting in 93% reduction in Azul’s planned capacity in April 2020 compared to February 2020. Unlike its U.S. peers, however, there was no direct, broad-based government funding in Brazil for the aviation industry… Azul turned to the private debt and equity markets to address its losses occasioned by the COVID-19 pandemic.”
Which caused AZUL’s indebtedness to more than quadruple since 2019. That itself could be cause for concern, but the Brazilian real exacerbated an already sh*t situation …
Specifically, in ‘24, the real ended the year “... with a devaluation of 26.4%,” which was a colossal issue for the debtors because they predominantly collect revenues in that currency but pay a huge chunk of operating expenses – 43.6%, 45.5% and 52.7% in ‘24, ‘23, and ‘22, respectively – and service debt in other currencies (principally US dollars).
Combining that devaluation with “… escalating oil prices, interest rates continuously rising, and maintenance-related supply chain shortages …”, “… Brazil’s uncertain political and economic climate …,” contemporaneous disruption experienced by major airlines and engine manufacturers leading to “ … delivery delays, engine design flaws, and performance issues across various aircraft model …”, an “… onslaught of litigation claims filed in Brazil in recent years …,”** and – g-ddamn these guys couldn’t catch a break – catastrophic flooding in Rio Grande do Sul in the spring of ‘24, and the debtors had a perfect sh*t storm.
To try to weather the turbulence, the debtors engaged in restructuring and capital-raising initiatives between 2020 and 2025, including an April ‘25 $200mm public pref equity offering that brought in, lol, $8mm. But as reality started to set in, the stock tanked …
… and the debt stack ballooned …
The superpriority notes and bridges notes are the most recent tack-on, issued in January and April ‘25, respectively, with the bridge notes coming into play on account of that busted equity raise ☝️ and to give the debtors the necessary runway to negotiate a deal and get into a formal proceeding.
Which, kudos to them, they did; the deal’s got a f*ck ton of support, embodied across three separate restructuring support agreements (“RSAs”). One with bondholders who own 67% of the superpriority notes, 89% of the bridge notes, 60% of the 1L notes, 45% of the 2L notes, and 95% of the convertible debentures (the “ad hoc group”), which contemplates a fully-backstopped $650 million equity rights offering,*** subject to definitive docs, exit notes to take out the DIP (discussed 👇), and equitizing the 1Ls, 2Ls, and converts.
Another with AerCap Ireland Limited (“AerCap”), an affiliate of AerCap Holdings N.V. ($AER) and “the lessor of more than a majority of the aircraft leased to the Debtors …,” which locks in agreement to restructure and modify lease and financial obligations.****
And finally, a third with United Airlines, Inc. ($UAL) and American Airlines, Inc. ($AAL), which have agreed to invest up to $300mm in new equity (subject to a $200mm floor) and help the debtors formulate a long-term business plan.*****
The cases are clearly ambitious and there’s still an Amazon rainforest of wood to chop – flipping the RSAs to definitive docs, getting approvals, etc. – so the debtors are going to have a prolonged layover in 11. In fact, they’re not going to be getting out until next year. The RSAs contemplate filing a plan and disclosure statement by October 5, 2025, entry of a DS order by November 4, 2025, entry of a confirmation order by December 29, 2025, and going effective by March 29, 2026.
To fund the holdover, the debtors are seeking a doozy of a DIP. It’s a headline
$1.6b multi-draw term loan, composed of up to $671mm in new money ($250mm interim) and, on final order, repayment of the superpriority notes (including a make-whole) and the bridge notes and a roll-up of $46mm of the AerCap debt and $65mm of the convertible debentures. The DIP bears interest at 15% (16% for the first 29 days post-close) and carries an undrawn DIP commitment fee of 4.5% (PIK), a 5% upfront fee on everything but the roll-ups (also PIK, earned on interim order), and a 1% maturity extension fee, to the extent the DIP needs to stick around for more than nine months.
The court held the first day hearing on May 29, 2025, at which it granted all first-day relief (although the DIP order has yet to hit the docket as of the time of this writing), and scheduled a second-day hearing for July 9, 2025 at 2pm ET.
The debtors are represented by Davis Polk & Wardwell LLP (Timothy Graulich, Joshua Sturm, Jarret Erickson, Richard J. Steinberg) and Togut, Segal & Segal LLP (Frank Oswald, Martha Martir, Amanda Glaubach, Christian Ribeiro) as US legal counsel, Pinheiro Neto Advogados (Giuliano Colombo, Guilherme Monteiro, Joamir Alves, Carolina Iwamoto) as Brazilian legal counsel, White & Case LLP (Richard Graham, Richard Kebrdle) as aviation co-counsel, FTI Consulting, Inc. ($FCN) (Samuel Aguirre, Marc Bilbao, Chris Creger) as CRO and financial advisor, and Guggenheim Securities, LLC (Homer Parkhill) as investment banker. The ad hoc group is represented by Cleary Gottlieb Steen & Hamilton LLP (Richard Cooper, Thomas Kessler) as US legal counsel and Mattos Filho, Veiga Filho, Marrey Jr. e Quiroga Advogados (Marina Anselmo Schneider, Marcelo Sampaio Góes Ricupero) as Brazilian legal counsel. American Airlines, Inc. ($AAL) is represented by Latham & Watkins LLP (Andrew Sorkin, Jonathan Weichselbaum, Nikhil Gulati) as legal counsel. United Airlines, Inc. ($UAL) is represented by Hughes Hubbard & Reed LLP (Kathryn Coleman, Erin Diers, Jeffrey Margolin) as legal counsel. Banco Citibank, S.A., as L/C issuer, and Citibank N.A., as lender, are represented by Allen Overy Shearman Sterling US LLP (Fredric Sosnick, Jacob Mezei) as legal counsel. Embraer S.A. ($ERJ) is represented by Womble Bond Dickinson (US) LLP (Edward Schnitzer, Derek Edwards) as legal counsel. AER is represented by Pillsbury Winthrop Shaw Pittman LLP (Michael Burke, Andrew Alfano) as legal counsel.
*Like seriously, this dude looooooves airlines. He’s founded five (Morris Air (acquired by Southwest Airlines ($LUV)), WestJet, JetBlue Airways ($JBLU), Azul, and Breeze Airways).
**The debtors have ~85k litigation claims pending against them as of the petition date, which Mr. Barros attributes to “[t]he ease of access to the Brazilian court system, together with the low cost of commencing legal action in Brazil and expedited litigation timelines[.]” And it’s not limited to the debtors; taking Mr. Barros at his word, the rise of consumer litigation is a nationwide trend in Brazil over recent years, and regardless of whether you think that’s a good or a bad thing, you have to admit it’s a f*ck ton of litigation.
***For backstopping, those parties will be entitled to a 14% fee on the $650mm, payable in common equity.
****The terms of AerCap’s deal are heavily redacted, so we can’t get more granular.
*****The RSAs are supported by equity holders Mr. Neeleman, José Mario Caprioli dos Santos, TRIP Participações S.A.,TRIP Investimentos Ltda., and Rio Novo Locações Ltda, which, collectively, own 100% of the common.
Company Professionals:
US Legal: Davis Polk & Wardwell LLP (Timothy Graulich, Joshua Sturm, Jarret Erickson, Richard J. Steinberg) and Togut, Segal & Segal LLP (Frank Oswald, Martha Martir, Amanda Glaubach, Christian Ribeiro)
Brazilian Legal: Pinheiro Neto Advogados (Giuliano Colombo, Guilherme Monteiro, Joamir Alves, Carolina Iwamoto)
Aviation Co-Counsel: White & Case LLP (Richard Graham, Richard Kebrdle)
CRO and Financial Advisor: FTI Consulting, Inc. ($FCN) (Samuel Aguirre, Marc Bilbao, Chris Creger)
Investment Banker: Guggenheim Securities, LLC (Homer Parkhill)
Special Independent Committee: Jonathan Zinman, James Grant, Renata Faber Rocha Ribeiro
Claims Agent: Stretto (Click here for free docket access)
Other Parties in Interest:
Ad Hoc Group of Azul Secured Noteholders:
US Legal: Cleary Gottlieb Steen & Hamilton LLP (Richard Cooper, Thomas Kessler)
Brazilian Legal: Mattos Filho, Veiga Filho, Marrey Jr. e Quiroga Advogados (Marina Anselmo Schneider, Marcelo Sampaio Góes Ricupero)
American Airlines, Inc. ($AAL):
Legal: Latham & Watkins LLP (Andrew Sorkin, Jonathan Weichselbaum, Nikhil Gulati)
United Airlines, Inc. ($UAL)
Legal: Hughes Hubbard & Reed LLP (Kathryn Coleman, Erin Diers, Jeffrey Margolin)
Banco Citibank, S.A. and Citibank N.A.:
Legal: Allen Overy Shearman Sterling US LLP (Fredric Sosnick, Jacob Mezei)
Embraer S.A. ($ERJ):
Legal: Womble Bond Dickinson (US) LLP (Edward Schnitzer, Derek Edwards)
AerCap Ireland Limited:
Pillsbury Winthrop Shaw Pittman LLP (Michael Burke, Andrew Alfano)