Brazilian airline Azul's shares jump on debt deal with lessors

SAO PAULO (Reuters) - Shares in Brazilian airline Azul jumped on Tuesday after it announced a debt deal with lessors, which analysts see removing an overhang in place since media reports suggested the firm was mulling a Chapter 11 bankruptcy filing.

Sao Paulo-traded shares of Azul were up more than 20% early in Tuesday's session, outperforming benchmark stock index Bovespa, which slipped 0.8%.

The carrier late on Monday said it had successfully reached commercial agreements with lessors and equipment manufacturers (OEMs) that hold about 92% of its existing equity issuance obligations to settle them with a pre-determined equity stake.

Under the deal, Azul said in a securities filing, lessors and OEMs agreed to eliminate obligations totaling some 3 billion reais ($544.64 million) and will receive, in exchange, up to 100 million new preferred shares of Azul in a one-time issuance.

Reuters first reported last month, citing sources, that Azul was close to clinching the debt-for-equity swap with lessors.

"We welcome the announcement as it removes the short-term overhang related to a potential Chapter 11 filing, which led to a 17-percentage-point underperformance since late August," JPMorgan analyst Guilherme Mendes said.

He estimated the move to imply an equity dilution of around 23%, with the 100 million shares valued at 575 million reais as of Monday's closing.

Azul first struck a deal with lessors and OEMs in 2023 to give them up to $570 million in preferred shares valued at 36 reais each, part of a broader restructuring that also delayed debt maturities and raised additional capital.

But its shares had dropped more than 60% this year as it struggled with a weaker exchange rate and disastrous flooding in the key market of Porto Alegre, triggering the need for another restructuring.

Azul noted that the fresh debt deal was contingent on amendments to certain other obligations, including the raising of additional financing, and subject to finalizing definitive binding documentation.

"Negotiations continue with the holders of the remaining 8% of the equity issuance obligations, as well as with other stakeholders," it added.

($1 = 5.5082 reais)

(Reporting by Gabriel Araujo, Editing by Franklin Paul)