Azul credit rating downgraded by S&P on default-like exchange

Azul SA’s credit score was cut one notch by S&P Global Ratings, which called the airline’s agreement with bondholders for additional financing a distressed transaction. S&P downgraded the Brazilian carrier to CC from CCC+ with a negative outlook, according to a statement released Wednesday. Azul inked a deal with its creditors this week for as much as $500m in new senior secured debt, with $150m to be provided initially and $250m by the end of the year. Another $100m could be unlocked at a later date, the company said in a regulatory filing. “We view this transaction, once completed, as tantamount to default,” S&P said. “While the exchange will be at par, with no initial maturity extension or change in coupons, we believe the transaction is distressed and creditors will receive less than originally promised.” The negative outlook signals that S&P will lower Azul’s credit rating to selective default if the deal closes under the current terms, the ratings company added. Azul is the only one of Brazil’s three dominant air carriers to have avoided Chapter 11 since the Covid-19 pandemic upended the industry. But it has struggled to shore up its balance sheet and manage the impact of a weak Brazilian currency, even after renegotiating with aircraft lessors and pushing back debt maturities through swap transactions. <br/>