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07 Aug 2015
New York, August 07, 2015 -- Moody's Investors Service (Moody's) assigned a Ba3 rating to the $300
million, 5-year senior unsecured term loan that Gol LuxCo
S.A.(Gol LuxCo) plans to arrange. Incorporated in
Luxemburg, Gol LuxCo is a wholly-owned subsidiary of Gol
Linhas Aereas Inteligentes S.A. (Gol). Moody's
Corporate Family rating for Gol remains unchanged at B3 and the outlook
is positive. Delta Air Lines, Inc. (Delta, Ba2
positive) will irrevocably and unconditionally guarantee the borrower's
and primary guarantor's payment obligations of the new term loan.
The proceeds of the term loan will be used for general corporate purposes
of the borrower and its affiliates. The rating of the proposed
term loan assumes that the final transaction documents will not be materially
different from draft legal documentation reviewed by Moody's to date and
assume that these agreements are legally valid, binding and enforceable
Issuer: Gol LuxCo S.A.
-- $300 million BACKED senior unsecured term loan
due 2020: Ba3 foreign currency rating
The outlook is positive
The Ba3 rating on the proposed $300 million senior unsecured term
loan is the same as Delta's unsecured rating. The Ba3 rating is
three notches higher than the rating assigned to Gol's other rated
unsecured obligations and reflects the unconditional and irrevocable payment
guarantee by Delta. Similarly to Gol LuxCo's other senior
unsecured notes due in 2023 and 2022, its parent company Gol and
VRG Linhas Aereas S.A. (VRG, B3 positive), the
operating subsidiary in Brazil, will guarantee the borrower's
According to Delta's guaranty agreement, if Gol LuxCo,
or any of the other immediate guarantors, fails to meet debt service
within the applicable grace period of 5 days for interest payment or at
the maturity date for principal payment, the lenders of the obligations
are entitled to the due and punctual payments of those obligations from
Delta, including any accrued interest. The credit agreement
also has provisions for the prompt notification of Delta in the event
of a missed interest or principal payment. As such, Moody's
views the Delta guaranty as an effective guaranty of payment of lenders
in the entirety of its original promise when due, and not just a
guarantee of collection after an event of default.
Delta has 2.9% interest in Gol's total capital and
one seat on its Board of Directors. Now the company is also seeking
to expand its participation through an equity increase of up to $56
million that is expected to be completed in September. If the minority
shareholders do not follow the capital subscription, we estimate
that Delta's participation in Gol's economic capital would
reach about 9.5%. Delta's increasing investments
in Gol demonstrates its commitment to their partnership, which provides
both companies' passengers with greater connectivity, code-sharing,
as well as increased cooperation on aircraft and engine maintenance,
along with higher market penetration.
The proceeds from this transaction will increase Gol's liquidity
to contend with its operating cost pressures and slowing demand growth
in its home market of Brazil, which has been challenged by deteriorating
demand from corporate passengers on the back of the country's slowing
economy. The continued devaluation of local currency, which
has lost 30% of its value since year-end 2014, is
also pressuring Gol's profitability and reducing most of the benefits
that we expected from lower fuel prices in 2015. As such,
Gol's leverage metrics will remain under pressure, with adjusted
debt/EBITDA potentially reaching 9.0 times by the end of 2015,
up from 5.3 times in 2014.
Gol's B3 Corporate Family rating continues to consider the company's solid
position in the Brazilian domestic market supported by its strong brand
name and low-cost structure based on a modern operating fleet of
140 Boeing 737 aircraft. The rating also incorporates the company's
still adequate liquidity position and manageable debt profile over the
next three years. On the other hand, Gol's high exposure
to foreign currency and fuel price volatility constrain the rating,
as does the near term challenges in the Brazilian aviation industry due
to lower industrial activity and still aggressive industry competition.
Delta's Corporate Family rating was upgraded to Ba2 in June 2015,
reflecting Moody's expectation of stronger credit metrics through 2016,
derived from the company's long-running focus on reducing funded
debt, effective capacity management and significantly lower fuel
expenses. The rating is also supported by a general reduction in
industry risk in the U.S. market and the company's
very good liquidity. Moody's expect Delta to maintain at
least $5 billion of aggregate unrestricted cash and revolver availability
during the next 12 to 24 months. Delta's Ba3 unsecured rating
stands one notch lower than its Corporate Family rating, reflecting
the subordination of unsecured creditors to the company's secured
The positive outlook on the rated term loan reflects the positive outlook
on Moody's rating of Delta. Moody's anticipates that
Delta will continue to whittle down its funded debt, supporting
further credit strength through 2016. It also considers Moody's
constructive view of the industry fundamentals in Brazil, which
remains supported by a solid track record of passenger demand growth in
mid-single digits, improved airport infrastructure and the
still underpenetrated market for air travel in Latin America.
An upgrade of the term-loan rating depends on improvement in Delta's
creditworthiness, as evidenced by a Debt to EBITDA ratio closer
to 3.0 times Funds from Operations plus Interest to Interest that
approaches 6.0 times or sustaining the EBITDA margin near 20%.
Conversely a downgrade will be considered if there is any deterioration
of Delta's credit; for example, if the company is unable
to sustain its EBITDA margin, or aggregate liquidity (including
availability on revolving credit facilities) was sustained below $5.0
billion, among other factors. The rating of the term loan
could also be lowered if the terms of the executed transaction documents
differ from Moody's expectation, particularly regarding the
timing of the required notification by the administrative agent to Delta
of non-payment by Gol or the primary guarantors, to later
than on a payment date.
The primary methodology used in this rating was Global Passenger Airlines
published in May 2012. Please see the Credit Policy page on www.moodys.com
for a copy of this methodology.
The cross-sector methodology titled Rating Transactions Based on
the Credit Substitution Approach: Letter of Credit-backed,
Insured and Guaranteed Debts published in March 16, was also used
in this rating. Please see the Credit Policy page on www.moodys.com
for a copy of this methodology.
Gol Linhas Aereas Inteligentes S.A., headquartered
in Sao Paulo, Brazil, is the largest low-cost and best-fare
carrier in Latin America, offering approximately 898 daily passenger
flights to connect Brazil's major cities and various destinations in South
America and the Caribbean, along with cargo and charter flight services.
In the last twelve months ended 31 March 2015, Gol reported consolidated
net revenues of R$10.1 billion ($4.1 billion)
and lease adjusted EBITDA of R$2.0 billion ($794
Delta Air Lines, Inc., headquartered in Atlanta,
Georgia, is the world's second largest airline, providing
scheduled air transportation for passengers and cargo throughout the U.S.
and around the world. The company reported $40.8
billion of revenue in 2014. In the last twelve months ended 31
March 2015, Delta reported consolidated net revenues of $40.8
billion and lease adjusted EBITDA of $6.7 Billion.
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in each case where the transaction structure and terms have not changed
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For any affected securities or rated entities receiving direct credit
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if applicable to jurisdiction: Ancillary Services, Disclosure
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Relating to Conflicts of Interest as required by Paragraph (a)(1)(ii)(J)
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Vice President - Senior Analyst
Corporate Finance Group
Moody's America Latina Ltda.
Avenida Nacoes Unidas, 12.551
16th Floor, Room 1601
Sao Paulo, SP 04578-903
Marianna Waltz, CFA
MD - Corporate Finance
Corporate Finance Group
Moody's assigns Ba3 rating to Gol's new $300 million term loan guaranteed by Delta Air Lines
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
No Related Data.
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