Latin America Bond: GOL’s US$500m seven-year bond

Brazilian discount airline GOL tapped the market while emerging markets were still hot to bring an upsized US$500m seven-year bond offering, successfully reintroducing itself after a tough restructuring to create a cheaper benchmark issue.

And while the rough and tumble world of the airline business doesn’t guarantee ultimate success for the issuer itself, the timing and triumph of the deal proved to be a rare event in a year strewn with victims of market volatility.

Bankers were particularly impressed with the efforts of Richard Lark, the company’s chief financial officer, both in terms of the timing of the deal and what its outcome meant for GOL.

With investors coming off a stellar 2017 in Latin America, Lark was keen to plant the airline’s flag back in the international capital markets before presidential elections in Brazil and monetary tightening in the US soured the tone.

“For us, it was a major exercise, which effectively refinanced the majority of our existing unsecured bonds,” Lark said.

Coming on the heels of a successful deal from rival Azul, the issuer took advantage of improving credit metrics and a relatively quiet market in December to move ahead with the deal.

Fitch had upgraded GOL by two notches to Single B a month before and the time seemed ripe to take the plunge. The airline had gone through a big operational shift and it seemed the right time to re-tell its story and reposition itself in the bond market.

Hoping to turn over a new leaf following a nasty debt restructuring, the company recalibrated risk perceptions of the credit by tendering its expensive 8.875% 2022 bonds for a new cheaper benchmark bond issue.

A tender price of 106.50 on the existing bonds offered a decent premium and had investors reconsidering the exit yield of 6.56% on the call date in 2021, bringing added demand to the new issue, which was upsized from US$350m to US$500m.

Starting with initial price thoughts of mid 7%, leads were able to tighten pricing by 25bp from start to finish before printing at a yield of 7.25%.

Rating agencies were pleased with the move. S&P upgraded GOL to B from CCC– in the wake of the deal, noting that more upgrades could be on the cards.

The deal was quickly followed by a US$150m tap of the 2025s at an even lower yield of 7% – the tight end of price talk – just as the market was starting to look wobbly. Bankers were suitably impressed, saying that management had transformed the credit.

Bank of America Merrill Lynch, Credit Suisse, Morgan Stanley, BTG Pactual, Evercore, Santander, BCP and Safra acted as leads on the trade.