Ad Hoc Bondholder Group in Azul’s Emergence From Chapter 11

Cleary Gottlieb represented an ad hoc cross-holder group of secured bondholders of Azul S.A. (Azul), the largest airline in Brazil by number of cities served, as Azul’s Chapter 11 plan becomes effective.

The group represents more than 65% of Azul’s total secured debt and is ultimately comprised of more than 20 leading financial institutions and some of the largest U.S.-based hedge funds.

The plan, which was confirmed less than seven months after filing for Chapter 11 protection reflecting the plan’s broad stakeholder support, positioned Azul to emerge with a substantially de-levered balance sheet, improved liquidity, a strengthened business plan, and new governance arrangements.

Cleary played a central role in structuring and negotiating a fully prearranged Chapter 11 plan that addressed the interests of multiple creditor classes and provided Azul with the financing runway needed to stabilize operations. Within six weeks of being notified of Azul’s severe liquidity challenges, Cleary helped drive consensus across the capital structure for a comprehensive in-court restructuring and arranged a debtor-in-possession (DIP) financing package of approximately $1.6 billion, including a meaningful amount of new capital that allowed Azul to operate without interruption during the restructuring.

The restructuring provided for, among other things, the tax-efficient equitization of all of Azul’s first lien and second lien debt and the backstopping of a $650 million equity offering, which was open to all equitizing first and second lien creditors at a 30% discount to plan value.

Cleary also led efforts to develop a restructuring plan that created opportunity for a substantial strategic investment by Azul’s airline partners, American Airlines, and United Airlines, resulting in a $100 million investment by United Airlines, which was funded, along with all other investments, at emergence on February 20, and a further $100 million investment by American Airlines, to be made via the exercise of warrants, which exercise is pending antitrust approval. In addition, Azul received incremental equity investments in the aggregate amount of US$100 million from a subset of the ad hoc bondholder group (the additional investment parties), and it entered into standalone warrant subscription agreements with United Airlines and with the additional investment parties, providing for the issuance of warrants which, if exercised, would increase the aggregate investments of both United Airlines and the additional investment parties by up to approximately $15 million and $10 million, respectively.

Cleary worked closely with the advisors to the Official Committee of Unsecured Creditors to reach a consensual settlement that facilitated an expedited and value maximizing resolution of the case.

At emergence, the proceeds from the ERO and other equity investments, as well as $1.375B in newly raised exit financing, were applied to pay down the DIP financing with the remainder being available to the company on its balance sheet.

This restructuring follows Cleary’s work representing Azul creditors in two previous out-of-court restructurings, in which creditors reshaped Azul’s balance sheet and provided over $750 million of new funding to Azul. Despite those efforts, Azul found itself unable to meet its ongoing liquidity challenges and filed for Chapter 11 in May 2025. Upon emergence from Chapter 11, Azul’s secured creditors will own a substantial majority of the equity of the reorganized Azul, reflecting their critical role in facilitating the restructuring and recapitalization of the company.

Cleary’s work with Azul on these groundbreaking transactions are the most recent examples of the firm’s deep experience in helping stakeholders navigate the ups and downs of the aviation sector. Since the onset of the COVID-19 pandemic, Cleary has played a leading role in the restructurings (and other transformative transactions) of LATAM Airlines, Aeroméxico, GOL, Garuda, SAS AB, Nordic Aviation, Asiana Air, JetBlue, and the U.S. Treasury in connection with its Payroll Support Program and Rescue Plan, providing over $30 billion across 13 different financings for U.S. airlines.

The Cleary corporate restructuring team included partners Rich Cooper, Francisco Cestero, and Carina Wallance; associates Josefina Griot and Lucas Davidenco; and international lawyer Julia Ferreira. The finance team included partner Duane McLaughlin; counsel Victor Chiu; associates Silvia Fittipaldi, Nicholas Pokas, Adrienne Lewis, Zhiyuan (Andy) Xie, David Rubinstein, and Cosmo Albrecht; and international lawyer Victor Barone. The bankruptcy team included partner Thomas Kessler; associates Richard Minott, Lucas Davidenco, and Timothy Wolfe; and law clerk Brendan Gerdts. Partners Jorge Juantorena and Jonathan Mendes de Oliveira advised on securities law matters. Partner Matthew Brigham and associate Nathaniel Pribil advised on tax matters. Partner Julia Petty and associate Gretchen Dougherty advised on executive compensation and benefits matters. Partners Brian Byrne, Ryan Shores, and Puja Patel advised on antitrust matters.