Brazil’s GOL Linhas describes collateral added to exchange offer

By Angela McDaniels

Tacoma, Wash., June 28 – GOL Linhas Aereas Inteligentes SA announced that all holders who participate in its exchange offers will receive new notes guaranteed by spare parts owned by VRG Linhas Aereas SA.

The spare parts are used in the operation of GOL’s fleet of Boeing 737-700 and 800 Next Generation aircraft. Morten Beyer & Agnew has appraised the collateral at $222.7 million.

The new notes will be guaranteed by the company, and VRG and will be secured by a fiduciary assignment first-priority security interest in all spare parts owned now or in the future by VRG and, as a result, will be structurally senior to the extent of the value of the collateral to all of GOL’s existing and future unsecured debt, including the old notes, and senior to any future subordinated debt that GOL may incur, according to a company news release.

As previously reported, subsidiary GOL LuxCo SA is offering new notes and cash in exchange for the 7½% senior notes due 2017 issued by GOL Finance Inc., the 9Ό% senior notes due 2020 issued by GOL Finance, the 8 7/8% senior notes due 2022 issued by GOL LuxCo, the 10Ύ% senior notes due 2023 issued by GOL LuxCo and the 8Ύ% perpetual notes issued by GOL Finance.

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

Exchange offer terms

As previously reported, the company amended the offer on June 20, changing the exchange considerations on offer and the terms of the new secured amortizing notes due 2018 to be issued by GOL LuxCo in exchange for the old notes.

To holders of old 2017 notes, GOL will pay an exchange consideration of up to 72.5% of par value with 21% of the par value paid in cash and the balance in the form of new notes. To holders of old 2020 notes, old 2022 notes and old 2023 notes, GOL will pay an exchange consideration of up to 55% of par value with 7% of the par value paid in cash and the balance in new notes. To holders of old perpetual notes, GOL will pay an exchange consideration of up to 45% of par value in the form of new notes.

In view of the reduction in principal amount being asked of exchanging holders, GOL made the following changes to the new notes;

• Increased the interest rate to from 8½% to 9½%, with 8½% payable in cash and 1% payable in kind;

• Shortened to July 2021 the maturity of the new notes to be exchanged for old 2020, 2022 and 2023 notes;

• Added a one-time payment – the improvement premium – equal to 13½% of the face value of the new 2021 notes and new 2028 notes if on or after Dec. 31, 2017, GOL's EBIT exceeds R$800 million for the preceding four fiscal quarters;

• Added a participation premium that will be paid if the holders of more than 60% of the existing notes participate in the exchange offer. The participation premium is equal to 2.5% of par for the 2017 notes and 5% of par for the old 2020, 2022, 2023 and perpetual notes; and

• Added a premium that will be paid in the event of a change in the company's voting control before 2018. For holders of the new 2021 notes, the premium is 50% of the par value of the then outstanding new 2021 notes, comprised of 10% in cash and 40% in new 2021 notes, and for holders of the new 2028 notes, the premium is 50% of the par value of the new 2028 notes, comprised of 10% in cash and 40% in new 2028 notes.

Following the changes, the exchange consideration for each $1,000 principal of the notes exchanged is as follows:

• For the 2017 notes, $210 cash and $515 principal amount of new 9½% notes due 2018, which includes an early participation premium of $25 principal amount of new notes, compared to the initial offer of $650 ($195 cash and $455 of notes);

• For the 2020 notes, $70 cash and $481 principal amount of new 9½% notes due 2021 notes, including an improvement premium of $51 principal amount of new 2021 notes and a participation premium of $50 principal amount of new 2021 notes, compared to the initial offer of $300 ($60 cash and $240 of notes);

• For the 2022 notes, $70 cash and $481 principal amount of new 2021 notes, including an improvement premium of $51 principal amount of new 2021 notes and a participation premium of $50 principal amount of new 2021 notes, compared to the initial offer of $300 ($60 cash and $240 of notes);

• For the 2023 notes, $70 cash and $481 principal amount of new 2021 notes, including an improvement premium of $51 principal amount of new 2021 notes and a participation premium of $50 principal amount of new 2021 notes, compared to the initial offer of $300 ($60 cash and $240 of notes); and

• For the perpetual notes, $447 principal amount of new 9½% notes due 2028, including an improvement premium of $47 principal amount of new 2028 notes and a participation premium of $50 principal amount of new 2028 notes, compared to the initial offer of $250 of notes.

Early participation premium

GOL did not extend the deadline for receiving the early participation premium. As a result, holders who tendered notes for exchange by 5 p.m. ET on May 27, the early participation date, will receive the following early participation premiums in addition to the exchange considerations noted above:

• For the 2017 notes, $15 cash and $35 principal amount of the new 2018 notes;

• For the 2020 notes, $10 cash and $40 principal amount of the new 2021 notes;

• For the 2022 notes, $10 cash and $40 principal amount of the new 2021 notes;

• For the 2023 notes, $10 cash and $40 principal amount of the new 2021 notes; and

• For the perpetuals: $50 principal amount of the new 2028 notes.

In addition, the company 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.

As noted before, the exchange offers are conditioned on at least 95% of the principal amount of outstanding old notes being tendered for exchange. No offer is conditioned on any of the other exchange offers being consummated.

The exchange offers had been scheduled to end at 11:59 p.m. ET on June 1 and were previously extended until June 8 and June 15.

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.

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