TAP SGPS deemed to have defaulted on €237 million Azul bond loan

Portuguese airline companyTAP SGPS, now renamed SAIVILO, has been deemed to have formally defaulted on a €237 million bond loan from the Brazilian airline Azul controlled by airline mogul David Neeleman.

The decision to call the default was approved at a bondholders meeting called by the fiduciary agent of the issuer at the request of the Brazilian airline company.

Parpública, the umbrella holding that controls Portuguese public companies, voted against the default call.

The bonds, which are convertible into shares, were issued by TAP SGPS and subscribed buy Azul and Parpública in 2016 at a time when David Neeleman was CEO and the largest shareholder in Azul, and together with entrepreneur Humberto Pedrosa was the main shareholder in TAP.

Azul loaned TAP SGPS €90 million and Parpública lent €30 million. The securities were due to mature in 2026 with a high interest rate of 7.5%, which in the meantime has been compounded, resulting in an amount that is now almost double the initial loan.

The two companies have been involved in a dispute over these securities since last summer and went to court with TAP moving forward in November with a lawsuit.

Negotiations between TAP and Azul lawyers had been ongoing but were interrupted in 2024 on the initiative of the Portuguese carrier.

The case saw a new development in mid-April, with the approval at an extraordinary meeting of bondholders of a resolution on “the recognition of the occurrence of Events of Default”, according to the minutes.

This agenda item was approved with votes in favor of Azul (75%), while Parpública (25%) voted against.

The meeting, held on April 15, also resolved that “the bonds are immediately due and repayable under the terms of Condition 11 of the Terms and Conditions of the Obligations”.

The trustee – a bondholders company, based in Valencia – was mandated to “enforce the terms of the Financial Documents as it sees fit.” If it does not do so, the possibility of Azul, as the majority bondholder, was given to act “directly against the Issuer”, in this case TAP SGPS, or another party to the contract, which includes TAP SA, owner of the airline.

Because of the decision that both the airline and State have defaulted, the actual amount of the debt will now have to be calculated regarding the securities based on a formula stipulated in the bonds contract.

But calculations provided to ECO suggests that on June 1 the value of the bonds plus interest will stand at €237 million, of which €178 million are due to Azul and €59 million to Parpública.

The CEO of Azul, John Rodgerson, told the news agency Lusa in February that he believed the issue over the debt would be resolved since “no one questions that Azul lent money to TAP.”

He also said that the debt could hamper the forthcoming privatisation of TAP since all outstanding debts have to be cleared before the privatisation goes ahead.