Gol could print between $350m and $550m in fresh seven-year debt to fund a liability management exercise and increase the portfolio of its debt profile, the Brazilian airline’s CFO told LatinFinance on Monday.

“We want to take advantage of market conditions, increase the profile of our debt portfolio and advance our deleveraging story that we expect to carry out over the next 12-to-18 months,” Richard Lark said.

Gol will time the trade over a non-call four structure and use a portion of proceeds to buy back the $276.7m it has in outstanding 8.875% 2022 bonds. The airline is offering 2022 noteholders $1,065 for every $1,000 exchanged in principal by December 6.

Earlier this month, Fitch Ratings upgraded Gol to B from CCC due to the company’s efforts to restructure. Lark said the parallel exercise, of a tender and new bond issue, was designed to build on momentum from the upgrade and restructuring as well as get out in front of Brazil’s 2018 election year.

“We just completed an 18-month long restructuring process,” Lark added. “In Brazil, in a pre-election year, we try to avoid the May-to-September period.” Gol has also been monitoring market conditions for at least two months now and based on bondholder feedback, Lark is hopeful of strong investor participation throughout the roadshow.

Should the company increase the issue size above $350m, Lark said proceeds could repay four of Gol’s outstanding callable bonds.

Fellow airline Azul’s $400m 2025 trade, printed in October, is the earliest possible comparable for any new Gol paper. Lark said these bonds were spotted around 6% in Monday’s secondary market.

Bank of America Merrill Lynch, BCP Securities, Credit Suisse and Morgan Stanley are coordinating the bond sale, DCM bankers confirmed.

The quartet will coordinate investor meetings in London, before visiting accounts in Geneva, Zurich and Santiago on Thursday and New York on Friday. Next week, the bookrunners will tap accounts in Los Angeles and Singapore on December 4 and conclude meetings in Boston on December 5.

S&P Global ratings gave the pending bond sale a preliminary B- rating, saying it believes the notes will improve the company’s creditworthiness. The rating agency also said the bonds could strengthen Gol’s liquidity and capital structure.

The rating agency said if the airline successfully taps the market it could raise its CCC+ issuer rating by one notch.

Fellow agency, Fitch, said the restructuring reduced Gol’s capacity and cost structure, lowered leverage and improved operational performance. Fitch also said Gol reached an operational margin of 9.8% up to September this year, compared to 7.1% and -1.9% in September 2016 and 2015, respectively.

Gol’s total adjusted debt-to-EBITDA was 5.4x in the first nine months of 2017, down from 6.2x at the same period in 2016 and 12.7x in 2015.

In April this year, Gol said it used cash to pay off about $56m in bonds. The Brazilian airline said in a statement it had BRL1.3bn ($417m at the time) in cash at the end of Q1 this year and a leverage ratio of approximately 4.5x.

Beyond bonds

Lark also said Gol was preparing its capital structure so it can welcome 120 new Boeing 737 narrow-body MAX 8 aircraft over next 10 years.

“It is designed to add capacity to our fleet, but it should also lower our operating costs by 15% based on fuel savings,” he said. “As a result of this, we can expand our international network to the Andean market, Caribbean and South Florida.” The new craft are engineered to cover longer flight times.

Roughly half of this order will be financed through the aircraft lessor and sale-leaseback market, while the other will be completed through acquisitions with US EX-IM bank guarantees and commercial bank funds. Lark also said new aircraft financing can originate from Japan’s JALCO market and the EETC space.

Lark was appointed executive vice president, CFO and investor relations officer at Gol in July 2016.

Photo Credit: Matheus Obst – GOL Linhas Aereas – PR-GXB – Boeing 737-8EH(WL)