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Rating Action:

Moody's assigns Ba3 rating to Gol's new $300 million term loan guaranteed by Delta Air Lines

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

Rating assigned:

Issuer: Gol LuxCo S.A.

-- $300 million BACKED senior unsecured term loan due 2020: Ba3 foreign currency rating

The outlook is positive

RATING RATIONALE

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 payment obligations.

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 debt.

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 million).

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.

REGULATORY DISCLOSURES

For ratings issued on a program, series or category/class of debt, this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series or category/class of debt or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody's rating practices. For ratings issued on a support provider, this announcement provides certain regulatory disclosures in relation to the rating action on the support provider and in relation to each particular rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides certain regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.

For any affected securities or rated entities receiving direct credit support from the primary entity(ies) of this rating action, and whose ratings may change as a result of this rating action, the associated regulatory disclosures will be those of the guarantor entity. Exceptions to this approach exist for the following disclosures, if applicable to jurisdiction: Ancillary Services, Disclosure to rated entity, Disclosure from rated entity.

The following information supplements Disclosure 10 ("Information Relating to Conflicts of Interest as required by Paragraph (a)(1)(ii)(J) of SEC Rule 17g-7") in the regulatory disclosures made at the ratings tab on the issuer/entity page on www.moodys.com for each credit rating:

Moody's was not paid for services other than determining a credit rating in the most recently ended fiscal year by the person that paid Moody's to determine this credit rating.

Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.

Please see www.moodys.com for any updates on changes to the lead rating analyst and to the Moody's legal entity that has issued the rating.

Please see the ratings tab on the issuer/entity page on www.moodys.com for additional regulatory disclosures for each credit rating.

Cristiane Spercel
Vice President - Senior Analyst
Corporate Finance Group
Moody's America Latina Ltda.
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16th Floor, Room 1601
Sao Paulo, SP 04578-903
Brazil
JOURNALISTS: 800-891-2518
SUBSCRIBERS: 55-11-3043-7300

Marianna Waltz, CFA
MD - Corporate Finance
Corporate Finance Group
JOURNALISTS: 800-891-2518
SUBSCRIBERS: 55-11-3043-7300

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Moody's assigns Ba3 rating to Gol's new $300 million term loan guaranteed by Delta Air Lines
No Related Data.
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