Azul Linhas Aéreas Brasileiras (AD, Sao Paulo Viracopos) has received a funding proposal from the state-owned Brazilian Development Bank (BNDES) and a syndicate of banks, subject to final approvals, in connection with an emergency plan to support sectors affected by the covid-19 pandemic.

The proposed government loan package foresees a public offering of a hybrid security with the objective of raising at least BRL2 billion reais (USD380 million), the airline said in a statement issued late on September 13.

If accepted by the company, the loan could dilute its stock by as much as 15% at current values, it said.

The hybrid financial instrument would consist of simple debentures and stock warrants, with a premium and exercise price to be defined through the would-be offering’s book-building process.

It places the BNDES as the anchor investor, which would be able to subscribe for up to 60% of the offering, while the banks would provide a firm guarantee of up to 10%. Investors would raise the remaining balance through a public offering.

However, Azul claimed that its liquidity position at the moment was “stronger than originally expected” and stressed that it was still analysing whether to accept the Brazilian government’s proposal.

On August 28, the company's chief executive John Rodgerson told Reuters that Azul may forego the anticipated BNDES-forged bailout package, as the company believed it would be able to obtain credit at more favourable terms in the private sector.

The two sides have been negotiating a possible package for several months. The BNDES said earlier in August that the renegotiation of debts was a primary requirement before any bailout package could be concluded.

“As it turned out, the delay for the package was even useful, because we were able to renegotiate 98% of our debts, we will not have any major maturities until the second half of 2021, and we are becoming a much more efficient company,” Rodgerson said. “If I was sure that things will continue to evolve as they are now, we will not need the package.”