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jayunited
Topic Author
Posts: 2762
Joined: Sat Jan 05, 2013 12:03 am

Could Delta be on the hook with Gol?

Wed Jun 10, 2020 2:54 pm

According to View from the Wing Brazilian airline GOL is in trouble and Delta could be on the hook with them. The article states back in 2015 Delta airlines guaranteed a 5 year $300 million dollar loan for their then partner airline Gol. The problem is the loan is due August 2020, and according to View from the Wing if Gol defaults on the loan Delta is on the hook for the entire $300 million dollars.

Is this true and if it is and Gol defaults what are Delta's options to keep from having to pay $300 million dollars in August?

Mods if this has already been discussed please delete I couldn't find any topic on this subject.

https://viewfromthewing.com/delta-air-l ... s-partner/
 
n9801f
Posts: 205
Joined: Tue Apr 13, 2004 8:29 am

Re: Could Delta be on the hook with Gol?

Wed Jun 10, 2020 3:37 pm

Very interesting.

The article says Delta is negotiating repayment delays with creditors. On the one hand, that sounds like it could give Gol more time to repay the loan themselves. On the other, by doing this Delta would appear to acknowledge liability for the loan.

Besides Covid, Gol is also affected by the MAX situation.

Delta’s equity partnership strategy is looking expensive at the moment. In addition to this possible $300M Gol loan, there is the $2.3B investment in LATAM at risk in bankruptcy, $360M investment in Virgin Atlantic would be at risk if it reorganized plus a $200M debt, etc.

That’s over $3B in cash they could really use right now.

These stakes looked brilliant at the time. But the history of foreign ownership stakes worldwide shows many failures. They’re often a short term play.

You have to wonder whether there will be consequences for this.
 
MIflyer12
Posts: 7724
Joined: Mon Feb 18, 2013 11:58 pm

Re: Could Delta be on the hook with Gol?

Wed Jun 10, 2020 3:57 pm

Bloomberg has more detail on this problem:

https://www.bloomberg.com/news/articles ... an-payment

jayunited wrote:
Is this true and if it is and Gol defaults what are Delta's options to keep from having to pay $300 million dollars in August?


Bloomberg says DL is negotiating with Gol creditors to get a payment extension. Normally that would be routine but these are not normal times. UA already wrote down some significant Avianca-related debt.

Hate to tell you, but AA bonds for 2025 have been trading at a bigger discount (implying a greater likelihood of non-payment) than are Gol's bonds.

https://news.bloomberglaw.com/bankruptc ... l-collapse
 
maverick4002
Posts: 221
Joined: Sun Jul 12, 2015 2:14 pm

Re: Could Delta be on the hook with Gol?

Wed Jun 10, 2020 3:59 pm

Oh my

Not too familiar with how these things work, but GOL is expected to pay the $300M in one fell swoop? Wouldn't they have been paying it down since 2015 and therefore the balance would be less than $300M? I guess not.
 
raylee67
Posts: 855
Joined: Mon Oct 24, 2011 11:06 pm

Re: Could Delta be on the hook with Gol?

Wed Jun 10, 2020 4:15 pm

If Delta is the guarantor, then it has the obligation to repay if the primary debtor was not able to. That said, the lenders are usually flexible. Their interest is best served if a compromise is reached with the debtor. Their goal is not to bankrupt the debtor.

MIflyer12 wrote:

Hate to tell you, but AA bonds for 2025 have been trading at a bigger discount (implying a greater likelihood of non-payment) than are Gol's bonds.

https://news.bloomberglaw.com/bankruptc ... l-collapse


Note that it's news from May 14, when the market was at the height of the panic. The same 2025 bond the article was talking about (which I think is USU0242AAD47), is trading at $62 today. It's still a far cry from its par value of $100, but it has recovered a lot from the price range around $30 back in May.
319/20/21 332/33 342/43/45 359/51 388 707 717 732/36/3G/38/39 74R/42/43/44/4E/48 757 762/63 772/7L/73/7W 788/89 D10 M80 135/40/45 175/90 DH1/4 CRJ/R7 L10
AY LH OU SR BA FI
AA DL UA NW AC CP WS FL NK PD
CI NH SQ KA CX JL BR OZ TG KE CA CZ NZ JQ RS
 
User avatar
SQ22
Moderator
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Joined: Sat Feb 25, 2012 9:29 am

Re: Could Delta be on the hook with Gol?

Wed Jun 10, 2020 4:17 pm

Please keep this thread on topic and discuss AA bonds, if desired, in a separate thread. Thanks.
 
raylee67
Posts: 855
Joined: Mon Oct 24, 2011 11:06 pm

Re: Could Delta be on the hook with Gol?

Wed Jun 10, 2020 4:21 pm

maverick4002 wrote:
Oh my

Not too familiar with how these things work, but GOL is expected to pay the $300M in one fell swoop? Wouldn't they have been paying it down since 2015 and therefore the balance would be less than $300M? I guess not.


No, what you have in mind is a "mortgage". Most business loans or a publicly traded bond do not work like a mortgage. During the term of the loan, the debtor will pay interest (usually every 6 months) only, and then the principle is repaid in one go (along with the last round of interest payment) at the end of the term of the loan.

There are loans that work like mortgage, but they are rarer. Publicly traded debt that works like mortgage (i.e. with a portion of principle being repaid along the way) is mostly Asset Backed Securities (i.e. ABS).

The reason why business loans or public bonds demand interest payment only for the duration of the term is because usually companies would just borrow a new loan or issue a new bond at the end of the existing loan or bond to cover that large principle repayment. That's called "rollover". But I guess no lenders are going to rollover GOL's debt under current circumstances. If anyone is willing to lend money to GOL for them to rollover the debt, the interest rate would have been prohibitively high.
319/20/21 332/33 342/43/45 359/51 388 707 717 732/36/3G/38/39 74R/42/43/44/4E/48 757 762/63 772/7L/73/7W 788/89 D10 M80 135/40/45 175/90 DH1/4 CRJ/R7 L10
AY LH OU SR BA FI
AA DL UA NW AC CP WS FL NK PD
CI NH SQ KA CX JL BR OZ TG KE CA CZ NZ JQ RS
 
n9801f
Posts: 205
Joined: Tue Apr 13, 2004 8:29 am

Re: Could Delta be on the hook with Gol?

Wed Jun 10, 2020 4:38 pm

MIflyer12 wrote:
Hate to tell you, but AA bonds for 2025 have been trading at a bigger discount (implying a greater likelihood of non-payment) than are Gol's bonds

Apples and oranges.

There is no record of successful reorganization in Brazil.

So this difference probably says that Gol’s risk of liquidation is lower than AA’s risk of reorganization.

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