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Investing.com -- Moody’s Ratings has announced a downgrade of Azul S.A.’s corporate family rating (CFR) to Ca from Caa2. The downgrade extends to Azul Secured Finance LLP and Azul Investments LLP, with the rating of the backed senior secured first lien debt due 2028, the backed senior secured debts due 2029 and 2030, and the backed senior unsecured debt ratings all downgraded to Ca from Caa3. The superpriority notes due 2030 and the exchanged first-lien notes due 2028 of Azul Secured Finance LLP have also been downgraded to Ca from Caa1. The outlook for all issuers remains negative.
This downgrade comes in the wake of Azul’s filing for voluntary protection under the U.S. Chapter 11 financial reorganization process. Moody’s has cited some prospects for recovery for existing secured and unsecured creditors as a rationale for the downgrade.
As part of its restructuring process, Azul anticipates approximately $1.6 billion in financing, the elimination of over $2.0 billion of debt, and potential further equity financing of up to $950 million upon emergence. The restructuring plan includes a secured commitment for debtor-in-possession (DIP) financing of approximately $1.6 billion from key financial partners, which will repay some of the company’s existing debt and provide around $670 million of new capital to enhance liquidity during the restructuring process.
Upon emergence, Azul plans to repay the DIP financing with the proceeds of an equity rights offering of up to $650 million, supported by these financial partners and potentially further supported by an additional equity investment of up to $300 million from United Airlines and American Airlines (NASDAQ:AAL), subject to certain conditions.
The CFR, secured rating, and unsecured rating were equalized at the same level, indicating the filing and Moody’s view that recovery prospects could vary among similar debt classes.
The negative outlook reflects Moody’s view of a prolonged recovery period for Azul as part of the reorganization and its limited financial flexibility, which is expected to result in losses to secured and unsecured creditors. These ratings will be withdrawn shortly following the filing for Chapter 11, as per Moody’s Ratings’ Withdrawal of Credit Ratings Policy.
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