NEW YORK--(BUSINESS WIRE)--Fitch Ratings has assigned an expected rating of 'B-(exp)/RR4' to Gol Linhas Aereas Inteligentes S.A.'s (GOL) proposed senior unsecured notes. These notes will be issued through GOL's wholly owned subsidiary, Gol LuxCo S.A. (Gol LuxCo), and will be unconditionally guaranteed by GOL. The target amount of the proposed issuance is in the range of USD350 million to USD500 million; the final issuance size will depend upon market conditions.
Proceeds from the proposed issuance will be used to refinance existing debt as part of a tender offer recently announced by the company. GOL has commenced an offer to purchase for cash any and all of the international senior notes issued through its fully owned subsidiaries. The obligations to be repurchased include any and all of GOL LuxCo's outstanding 10.750% senior notes due 2023 (USD80 million outstanding), GOL Finance's outstanding 9.250% senior notes due 2020 (USD300 million outstanding), and GOL Finance's outstanding 7.50% senior notes due 2017 (USD122 million). The final rating is contingent upon the receipt of final documents conforming to information already received.
The 'B-' rating for the proposed notes reflects GOL's high leverage and the sensitivity of GOL's financial performance to several factors not controlled by the company such as competition, devaluation of the local currency versus the U.S. dollar, and fuel cost. These variables could offset positive actions taken by management to reduce capacity, measured as available seat kilometers (ASK). GOL's ratings consider its leading market position in the Brazilian domestic market and solid liquidity position. The 'RR4' Recovery Rating of the proposed notes reflects average recovery prospects in the event of a default.
The Stable Outlook for GOL's ratings incorporates the view that the company's consolidated adjusted gross leverage will remain in the 6x to 8x range and its liquidity position, as measured by total cash to LTM revenues, will remain above 20% through the economic cycle.
See the complete list of GOL's ratings at the bottom of this press release.
KEY RATING DRIVERS:
Market Position and Business Diversification Incorporated:
GOL has a leading business position in the Brazilian domestic market with a market share of 36.1%, as measured by revenues per kilometers during the time period from January through July 2014. GOL's operational results are highly correlated to the domestic economy, as the Brazilian domestic passenger market represents approximately 90% of its revenues. The company maintains a high exposure to FX depreciation risk as approximately 90% of its revenues are denominated in local currency, while around 60% of its total costs and 80% of its total debt are denominated in U.S. dollars. GOL's limited geographic diversification acts as a limitation on the company's rating.
High Gross Adjusted Leverage:
Material business deleveraging executed between 2013 and 2014 has improved margins. These improvements occurred despite a challenging business environment that was marked by a devaluation of the local currency and the slowdown of the Brazilian economy. During 2013 and the first half of 2014, GOL's EBITDAR margins were 17% and 18.2%, respectively. These margins compare favorably with EBITDAR margins of 9% and 3% in 2011 and 2012. Better cash flow generation has resulted in lower adjusted gross leverage. GOL's EBITDAR and total adjusted debt reached levels of BRL1.8 billion and BRL11.1 billion, respectively, during the LTM. The company's adjusted gross adjusted debt/EBITDAR was 6.9x during 2013 and 6.2x for the same LTM, after reaching 37.6x during 2012.
Solid Liquidity:
The ratings positively incorporate the company's actions taken during 2013-2014 period to build and maintain significant liquidity. GOL had a cash position of BRL2.6 billion at the end of June, which is equivalent to about 26% of the company's LTM revenues (BRL9.8 billion). Excluding the company's cash exposure to Venezuelan bolivars (BRL329.7 million as of the LTM, its cash position represents 23% of LTM revenues. On July 15, 2014, the company's subsidiary, Smiles S.A. (Smiles) issued a BRL600 million debenture issuance. GOL faces debt amortizations - pro forma considering Smiles' BRL600 million debentures - of approximately BRL518 million, BRL868 million, and BRL590 million during the second half of 2014, 2015, and 2016, respectively. These figures include payments due related to financial leases.
The ratings incorporate the view that GOL will continue to maintain high liquidity with the cash/LTM revenue above 20% in the short- to medium-term. GOL generated BRL838 million of free cash flow (FCF) during the LTM ended June 30, 2014. The company's FCF margin (LTM FCF/LTM revenues) of 8.5% reflects its decision to maintain capital expenditures at low, at BRL303 million.
RATING SENSITIVITIES:
Negative Rating Action: A negative rating action could be triggered by a deterioration of the company's liquidity resulting from some combination of the following factors: a fuel spike, significant depreciation of the local currency versus the U.S. dollar, excess capacity in the sector affecting the pricing environment and falling demand in the domestic market.
Positive Rating Action: Fitch could consider a positive rating action if GOL consistently reduces volatility in its margins through the economic cycle resulting in lower financial adjusted gross leverage to those levels incorporated in the ratings while keeping a solid liquidity profile.
Fitch currently rates GOL and the company's fully owned subsidiaries as follows:
Gol Linhas Aereas Inteligentes S.A. (GOL):
--Foreign and local currency long-term Issuer Default Ratings (IDRs) 'B-';
--Long-term national rating 'BBB-(bra)';
--USD200 million perpetual bonds 'B-/RR4'.
VRG Linhas Aereas S.A. (VRG):
--Foreign and local currency long-term IDRs 'B-';
--Long-term national rating 'BBB-(bra)';
--BRL500 million of local debentures due 2017 'BBB-(bra)'.
Gol LuxCo S.A.:
--USD200 million (USD80 million outstanding) of senior notes due 2023 'B-/RR4'.
GOL Finance:
--USD225 million (USD122 million outstanding) of senior notes due 2017 'B-/RR4';
--USD300 million of senior notes due 2020 'B-/RR4'.
The Rating Outlook is Stable.
Additional information is available at 'www.fitchratings.com'.
Applicable Criteria and Related Research:
--'Corporate Rating Methodology - Including Short-Term Ratings and Linkage Between Holding Companies and Subsidiaries' (May 28, 2014).
Applicable Criteria and Related Research:
Corporate Rating Methodology - Including Short-Term Ratings and Parent and Subsidiary Linkage
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=749393
Additional Disclosure
Solicitation Status
http://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=863394
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