Here's Why Shares of GOL Linhas Aereas Dropped on Friday

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What happened

Share of GOL Linhas Aereas Inteligentes (NYSE: GOL) fell 8% on Friday after Brazil's largest airline said in a securities filing it had cut the size of a convertible bond offering designed to trim the company's massive debt load.

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So what

GOL said it had priced an offering for a $300 million issuance of convertible bonds maturing in 2024 at an interest rate of 3.75% annually. The company said it would use the proceeds to pay down higher-rate loans, including some debts that carry interest rates as high as 9% to 10%.

As of Feb. 28, the company's average interest rate on U.S. dollar-denominated debt was 6.8%, and its local currency debt carried an average interest rate of 7.7%.

The offering is for 5.2 million shares, down from the 14 million shares the company had said, back on March 14, it intended to sell. The company has total debt of nearly $7 billion and a sky-high total debt-to-EBITDA ratio of 6.

Now what

GOL went into 2019 hoping to reduce its debt while expanding domestic capacity by between 2% and 4% and international capacity by upwards of 45%, in part by selling some of its older planes and replacing them with new Boeing 737-MAX aircraft. The recent troubles with Boeing's new jet have thrown those plans into doubt, but it is good to see GOL continuing to push to revitalize its balance sheet.

The company is optimistic about its future, in late February raising its estimates for 2019 earnings by $0.10 per share to $1.30-$1.50 and 2020 earnings to $1.70-$2.00 per share. But recent events are a reminder at how difficult the airline business can be, and how fickle investors tend to be on the sector.

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Lou Whiteman has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.