SAO PAULO (Reuters) – Delta Air Lines DAL.N faces new headache in Latin America as Monday’s deadline approaches for ex-Brazilian partner Gol Linhas Aereas Inteligentes GOLL4.SA repay a $ 300 million loan guaranteed by the US carrier.

If Gol does not repay – which the rating agencies say looks more likely – Delta would have to honor the debt on Gol’s behalf, honoring the five-year agreement. But so does Gol, the Atlanta-based carrier, which said in July it was burning $ 27 million a day here, has little money to lose due to the coronavirus pandemic.

Gol’s struggles are just the latest challenge for Delta, whose investments in Latin America, once seen as a growth area, have faltered due to COVID-19.

Delta’s 49% stake in Aeromexico and 20% stake in LATAM Airlines Group may be diluted or wiped out here as the two airlines undergo bankruptcy restructurings.

For Gol, Brazil’s largest carrier, the due date of the Delta-backed private loan comes amid a severe cash shortage. The loan was granted by unidentified private investors.

“Gol faces constant consumption of liquidity with no refinancing possibilities,” said Amalia Bulacios, who covers Gol for S&P Global Ratings, which rates its debt as CCC-, at risk of default.

On Monday, before repaying the loan, Gol might have only 1.6 billion reais ($ 285.19 million) in cash, Reuters calculated. The calculation is based on Gol’s cash and cash equivalents, as well as its liquid investments, as of June 30, less its expected cash consumption of R $ 3 million per day.

“We are three working days away from the deadline and the company has been very silent; it is not even clear if there is a negotiation going on, ”she added.

Gol and Delta declined to confirm whether negotiations were underway. A source familiar with the matter said negotiations were indeed underway.

The situation echoes that of Colombian Avianca Holdings AVT_p.CN in May, when it filed for bankruptcy due to a delay in repaying the debt the next day. Analysts, however, said Gol’s restructuring needs are much simpler than Avianca’s and could potentially occur out of court.

Raising money at the 11th hour, however, seems unlikely.

While the Brazilian government offered the Gol 2 billion reais ($ 356.49 million) in loans, two sources said it would not release the money unless the Gol succeeds in extending the deadline. his debt. Brazil wants the funds to be used for the airline’s operations, not to pay off creditors.

Meanwhile, Gol executives admitted last month that the airline was unlikely to raise new capital.

“There’s a certain aversion to Brazil, a certain aversion to the airlines, and then we’re sort of in all of that bucket,” Gol CFO Richard Lark said during the appeal to business results. “This is not really the private market.

DEBT ATTACHED

Gol’s debt problems show how quickly the coronavirus has wreaked havoc on the balance sheets of airlines around the world.

For years, Gol downplayed the importance of the $ 300 million loan. Executives said not only would they pay it off in full, but they would do it ahead of schedule.

As late as February 25, even as the pandemic raged across Asia and Europe, a presentation by Gol said the airline had “no relevant deadline in the next five years.”

Now Gol’s future hangs in the balance because of the once seemingly insignificant loan that is coming due.

Delta, which has long grown around the world by purchasing from other carriers, injected $ 56 million in equity into Gol in 2015 and guaranteed the loan of $ 300 million. At the time, Gol executives said they could not have increased the debt without Delta’s support.

Delta sold its stake in Gol in 2019 to buy its stake in rival LATAM Airlines, but maintained the loan guarantee.

If Gol fails to make the payment and Delta is forced to intervene, Delta will have the option to seize the Brazilian airline’s stake in its publicly traded loyalty program, Smiles Fidelidade. SMLS3.SA, who guaranteed the loan.

But Gol’s stake in Smiles is only worth 954 million reais ($ 170.04 million). And the loyalty program has little strategic value as Delta has moved from Gol to LATAM Airlines.

“If Delta does this, it will strangle Gol’s cash flow, endanger Gol’s survival and become a shareholder in Smiles, a company that itself needs Gol to be successful,” said Ricardo Fenelon, former head of the company. ANAC, Brazilian aviation regulator.

“It doesn’t make a lot of sense.”

($ 1 = 5.6103 reais)