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Rating Action:

Moody's downgrades Gol to Caa1 from B1; outlook negative

02 Jun 2020

New York, June 02, 2020 -- Moody's Investors Service ("Moody's") downgraded Gol Linhas Aereas Inteligentes S.A's (Gol) corporate family rating to Caa1 from B1. Gol Finance's perpetual notes guaranteed by Gol and Gol Linhas Aereas S.A. and the $350 million senior exchangeable notes due 2024 issued by Gol Equity Finance and guaranteed by Gol and Gol Linhas Aereas S.A. were downgraded to Caa2 from B2. The outlook is negative. This concludes the review initiated on 17 March 2020.

At the same time Moody's confirmed the Baa3 the foreign currency rating assigned to Gol LuxCo S.A.'s ("Gol LuxCo") term loan guaranteed by Delta Air Lines, Inc. ("Delta"). The outlook is negative. This concludes the review initiated on 17 March 2020.

Downgrades:

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

.... Corporate Family Rating, Downgraded to Caa1 from B1

..Issuer: GOL Equity Finance

....Gtd Senior Unsecured Regular Bond/Debenture, Downgraded to Caa2 from B2

..Issuer: Gol Finance

....Gtd Senior Unsecured Regular Bond/Debenture, Downgraded to Caa2 from B2

Confirmations:

..Issuer: Gol LuxCo S.A.

....Gtd Senior Unsecured Term Loan, Confirmed at Baa3

Outlook Actions:

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

....Outlook, Changed To Negative From Rating Under Review

..Issuer: GOL Equity Finance

....Outlook, Changed To Negative From Rating Under Review

..Issuer: Gol Finance

....Outlook, Changed To Negative From Rating Under Review

..Issuer: Gol LuxCo S.A.

....Outlook, Changed To Negative From Rating Under Review

RATINGS RATIONALE

The downgrade to Caa1 reflects a sharper decline in passenger traffic than initially anticipated and a slower recovery that will prevent passenger demand from reaching 2019 levels before 2023. The International Air Travel Association's (IATA) latest scenario analysis forecasts a decline in global passenger numbers of around 24% for the full year 2020 while 2019 levels will not be exceeded until 2023. Since the outbreak of coronavirus Gol has been taking all necessary measures to reduce cash burn, but the steep retraction in demand and slow recovery will result in a weaker liquidity profile and higher leverage depending on the duration of the coronavirus outbreak. The rating action concludes the review initiated on March 17 2020.

The rapid and widening spread of the coronavirus outbreak, deteriorating global economic outlook, falling oil prices, and asset price declines are creating a severe and extensive credit shock across many sectors, regions and markets. The combined credit effects of these developments are unprecedented. The passenger airline sector has been one of the sectors most significantly affected by the shock given its exposure to travel restrictions and sensitivity to consumer demand and sentiment. More specifically, the weaknesses in Gol's credit profile have left it vulnerable to shifts in market sentiment in these unprecedented operating conditions and Gol remains vulnerable to the outbreak continuing to spread. Today's action reflects the impact on Gol of the breadth and severity of the shock, and the deterioration in credit quality it has triggered. We regard the coronavirus outbreak as a social risk under our ESG framework, given the substantial implications for public health and safety.

Moody's base case assumptions are that the coronavirus pandemic will lead to a period of severe cuts in passenger traffic for 2020 with partial or full flight cancellations and aircraft groundings, with all regions affected globally. The base case assumes a gradual recovery in passenger volumes starting in the third quarter. However, there are high risks of more challenging downside scenarios and the severity and duration of the pandemic and travel restrictions is uncertain. Moody's analysis assumes a reduction of around 50 % in Gol's passenger traffic for the full year 2020 and a 22% reduction for 2021, with volumes recovering to 2019 levels only by 2023.

Moreover, the economic slowdown in Latin America coupled with increased risk aversion is driving the sharp devaluation in local currencies in the region. Accordingly, Gol is particularly exposed to the depreciation of the Brazilian Real, which accounts for about 85% of the company's revenues. This effect is only partially mitigated by the important reduction in fuel prices.

Moody's anticipates that the airline industry will require continued and further support from regulators, national governments and labor representatives to alleviate pressures on slot allocations, provide indirect or direct financial support and manage airlines' cost bases. Although there is nothing concrete yet, the Brazilian government announced that it is considering measures to support the airlines operating in Brazil including, but not limited to long term credit lines and working capital lines to be provided by state owned banks as well as allowing the companies to defer tax payments.

LIQUIDITY

Moody's estimates that Gol had around BRL3.5 billion in cash at the end of April 2020. The company has been taking all necessary measures to reduce cash burn such as cuts of around 50% in salaries, wages and benefits, 60% salary reduction for top management, and negotiation of part-time hours for crew. Approximately 38% of the total workforce chose voluntary unpaid leave. Other expenses such as marketing and advertising, as well as projects that are not essential for the continuity of operations were suspended. The company has also been able to significantly reduce costs through the negotiation of favorable payment terms with all suppliers and lessors.

GOL has continued to benefit from support of its creditors, over the last three months the company has executed over BRL1 billion in debt refinancing, including the extension of local debentures to 2022 and deferral of lease payments for up to six months. Still there are significant maturities in 2020 such as the term-loan guaranteed by Delta airlines of around BRL1.5 billion that could reduce Gol's cash position if repaid in full and on time.

As alternative sources of liquidity the company has around BRL3 billion in financeable deposits and unencumbered assets that could be used in potential secured financing transactions.

The negative outlook reflects the potential for greater than already anticipated adverse impact from the coronavirus crisis, which would consume more of the company's liquidity and delay the pace and scope of the recovery in demand, the retirement of debt, and the strengthening of credit metrics relative to Moody's current expectations.

FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS

Positive rating pressure would not arise until risks and uncertainties are reduced significantly because of a large increase in liquidity while the coronavirus outbreak is brought under control and travel restrictions are lifted. Positive rating pressure would require evidence that the company is on track to recover its financial metrics and restore liquidity.

Moody's could further downgrade Gol if:

• wider liquidity concerns increase

• there are increased expectations of a default in the company's financial obligations and increased expectations of losses to creditors

• the company executes debt restructuring transactions with losses to creditors

PRINCIPAL METHODOLOGY

The principal methodology used in these ratings was Passenger Airline Industry published in April 2018 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1091811. Alternatively, please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.

COMPANY PROFILE

Based in Sao Paulo and founded in 2001, Gol is the largest low-cost carrier in Latin America, offering over 700 daily passenger flights to connect Brazil's major cities and various destinations in South America, North America and the Caribbean, along with cargo and charter flight services. Additionally, Gol has a 53% stake in Smiles, a loyalty program company with more than 14 million participants that allows members to accumulate miles and redeem tickets in more than 900 destinations around the world and offer non-ticket reward products and services. In the fiscal year ended December 2019, Gol reported consolidated net revenues of BRL13.9 billion and lease adjusted EBITDA of BRL4.1 billion. Gol LuxCo, Gol Finance, and Gol Equity Finance are wholly-owned subsidiaries of Gol.

REGULATORY DISCLOSURES

For further specification of Moody's key rating assumptions and sensitivity analysis, see the sections Methodology Assumptions and Sensitivity to Assumptions in the disclosure form. Moody's Rating Symbols and Definitions can be found at: https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_79004.

For ratings issued on a program, series, category/class of debt or security this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series, category/class of debt, security 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 credit rating action on the support provider and in relation to each particular credit 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 credit rating action, and whose ratings may change as a result of this credit 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 ratings have been disclosed to the rated entity or its designated agent(s) and issued with no amendment resulting from that disclosure.

These ratings are solicited. Please refer to Moody's Policy for Designating and Assigning Unsolicited Credit Ratings available on its website www.moodys.com.

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

Moody's general principles for assessing environmental, social and governance (ESG) risks in our credit analysis can be found at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1133569.

At least one ESG consideration was material to the credit rating action(s) announced and described above.

The Global Scale Credit Rating on this Credit Rating Announcement was issued by one of Moody's affiliates outside the EU and is endorsed by Moody's Deutschland GmbH, An der Welle 5, Frankfurt am Main 60322, Germany, in accordance with Art.4 paragraph 3 of the Regulation (EC) No 1060/2009 on Credit Rating Agencies. Further information on the EU endorsement status and on the Moody's office that issued the credit rating is available on www.moodys.com.

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.

Marcos Schmidt
VP - Senior Credit Officer
Corporate Finance Group
Moody's America Latina Ltda.
Avenida Nacoes Unidas, 12.551
16th Floor, Room 1601
Sao Paulo, SP 04578-903
Brazil
JOURNALISTS: 0 800 891 2518
Client Service: 1 212 553 1653

Marianna Waltz, CFA
MD - Corporate Finance
Corporate Finance Group
JOURNALISTS: 0 800 891 2518
Client Service: 1 212 553 1653

Releasing Office:
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653

No Related Data.
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