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Rating Action:

Moody's downgrades Gol Linhas Aereas's ratings with planned debt exchange; senior unsecured to Caa3

05 May 2016

New York, May 05, 2016 -- Moody's Investors Service ("Moody's") downgraded the ratings of Gol Linhas Aereas Inteligentes S.A.'s ("Gol") debt, including Gol Finance's senior notes due in 2017 to Caa3 from Caa2, the perpetual notes guaranteed by Gol to C from Caa2, and the corporate family rating to Caa3 from Caa1. The rating outlooks remain negative. Moody's also affirmed the foreign currency rating assigned to Gol LuxCo S.A.'s ("Gol LuxCo") term loan guaranteed by Delta Air Lines, Inc. ("Delta") at Baa3; outlook stable.

Downgrades:

..Issuer: Gol Linhas Aereas Inteligentes S.A.

....Corporate Family Rating, Downgraded to Caa3 from Caa1

..Issuer: Gol Finance

....USD225 Million (USD99.6 Million Outstanding) Guaranteed Senior Unsecured Notes due 2017, Downgraded to Caa3 from Caa2

....USD200 Million Guaranteed Senior Unsecured Perpetual Notes, Downgraded to C from Caa2

Affirmation:

..Issuer: Gol LuxCo S.A.

....USD300 Million Guaranteed Senior Unsecured Term Loan due 2020, Affirmed at Baa3

Outlook Actions:

..Issuer: Gol Linhas Aereas Inteligentes S.A.

....Outlook, Remains at Negative

..Issuer: Gol Finance

....Outlook, Remains at Negative

..Issuer: Gol LuxCo S.A.

....Outlook, Remains at Stable

RATINGS RATIONALE

The ratings downgrade follows Gol's announcement that its subsidiary Gol LuxCo has initiated a private exchange offer for approximately USD782 million in debt outstanding including the senior unsecured notes due in 2017, in 2020 and the Perpetual notes issued by Gol Finance, along with the senior unsecured due in 2022 and in 2023 issued by LuxCo. Moody's views this transaction as a distressed exchange given that the new package of securities and assets offered amount to a materially lower financial obligation relative to its original promise, with the effect of allowing the issuer to avoid a Moody's default event.

For those investors that choose to accept the tender, the company is offering a combination of cash and LuxCo's new secured notes with final maturity dates ranging from 2018 and 2028 with a coupon of 8.50% per year, which imply recovery rates in the 30% to 70% range for the tendered notes. The new notes will be secured by spare parts providing collateralization for about 90% to the new debt obligations and it will be 100% guaranteed by the VRG Linhas Aéreas S.A., Gol's operating subsidiary in Brazil.

Gol's objective with this transaction is to achieve a more attainable debt structure in face of a prolonged challenging operating environment and economic uncertainties in its home market. During 2015, the company results plumbed to a BRL4.5 billion net loss while its net cash burn reached BRL826 million leading its gross debt to lease adjusted EBITDA ratio to 9.9x. The deterioration reflected a sharp contraction of about 3.8% of the Brazilian GDP, 32% devaluation of the Brazilian real and high inflationary pressures. In addition, the Brazilian aviation sector has been affected by a more soft demand growth rate, excess capacity and lower yields. A situation that we expect to prevail through 2017.

The downgrade of the corporate family rating to Caa3 reflects Moody's current view of Gol's consolidated probability of default and expected loss for its debt holders, considering its current capital structure that includes approximately 40% of secured debt and 60% of unsecured notes. The 2017 senior unsecured note is now rated at the same level, given its expected recovery rate, while the Perpetual notes is rated C, given its lower expected recovery rate.

The affirmation of Gol LuxCo's USD300 million senior unsecured term loan at Baa3 reflects Delta guaranty for this term loan. Moody's views this guarantee 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. As such, the rating on the term loan is at the same level as Delta's senior unsecured rating of Baa3 and the outlook is stable.

Moody's acknowledges that Gol's management remains fully committed to finding a solution to its unsustainable capital structure and is vigorously pursuing options to improve liquidity. In addition to the exchange offer for the notes, Gol has recently announced other measures to restructure its balance sheet and improve its liquidity profile including a 5% to 8% capacity reduction in 2016, along route network changes. The company is also engaged in supplier and leasing contract negotiations for right sizing the fleet to the new market fundamentals. Last February, the company announced an agreement with Smiles for an advance ticket sale of up to BRL1 billion.

These efforts, along with a successful execution of the exchange offers will eventually ensure that Gol emerges from the current financial crisis in a better competitive position. After the restructuring is completed, Moody's will revisit the company's ratings reflecting the composition of the new capital structure as well as other fundamental credit characteristics.

The negative outlook on Gol and Gol Finance reflects its evolving capital structure and the uncertainties related to the ongoing exchange offer amid a prolonged scenario of weaker market fundamentals, which will keep the company's profitability and cash flow generation under pressure at least through 2017.

Downward pressure on Gol's ratings or the outlook will occur if credit metrics continue to deteriorate over the next few quarters without expectation of recovery. Quantitatively, negative ratings pressure increases if adjusted gross Debt to EBITDA remains above 8.0x for a prolonged period, or should cash trend towards 15% of revenues. Moody's perception of a material deterioration in the company's financial flexibility to meet capital requirements could also lead to a negative rating action for Gol. Further downward pressure on the ratings would arise with a default in interest or debt amortization, payment deferral or a larger than expected loss for creditors in a debt restructuring.

An upgrade of Gol's ratings is unlikely at this time. Positive ratings pressure requires sustained adjusted leverage below 6.0 times on a gross basis along with an EBIT interest coverage above 1.0x, and unrestricted cash that represents at least 25% of net revenues.

An upgrade or downgrade in the term-loan rating depends on changes in Delta's creditworthiness.

The principal methodology used in these ratings was Global Passenger Airlines published in May 2012. Please see the Ratings Methodologies 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 Creditbacked, Insured and Guaranteed Debts published in December 2015 was also used in these ratings. Please see the Ratings Methodologies 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 900 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 30 September 2015, Gol reported consolidated net revenues of BRL9.9 billion (USD3.3 billion) and lease adjusted EBITDA of BRL1.5 billion (USD500 billion). Gol LuxCo and Gol Finance are wholly-owned subsidiaries of Gol Linhas Aereas Inteligentes S.A. ("Gol," Caa3 negative).

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.

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.
Avenida Nacoes Unidas, 12.551
16th Floor, Room 1601
Sao Paulo, SP 04578-903
Brazil
JOURNALISTS: 800-891-2518
SUBSCRIBERS: 55-11-3043-7300

Robert Jankowitz
MD - Corporate Finance
Corporate Finance Group
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

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SUBSCRIBERS: 212-553-1653

Moody's downgrades Gol Linhas Aereas's ratings with planned debt exchange; senior unsecured to Caa3
No Related Data.
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