Fitch Affirms GOL's IDR at 'B-'; Outlook Revised to Stable

miércoles 19 de marzo de 2014 15:49 GYT
 

(The following statement was released by the rating agency) NEW YORK, March 19 (Fitch) Fitch Ratings has affirmed the ratings of Gol Linhas Aereas Inteligentes S.A.'s (GOL) and its fully owned subsidiaries as follows: Gol Linhas Aereas Inteligentes S.A. (GOL): --Foreign and local currency long-term Issuer Default Ratings (IDRs) at 'B-'; --Long-term national rating at 'BBB-(bra)'; --USD200 million perpetual bonds at 'B-/RR4'. VRG Linhas Aereas S.A. (VRG): --Foreign and local currency long-term IDRs at 'B-'; --Long-term national rating at 'BBB-(bra)'; --BRL500 million of local debentures due 2017 at 'BBB-(bra)'. --USD200 million of senior notes due 2023 at 'B-/RR4'. GOL Finance, a company incorporated with limited liability in the Cayman Islands: --Foreign and local currency long-term IDRs at 'B-'; --USD225 million of senior notes due 2017 at 'B-/RR4'; --USD300 million of senior notes due 2020 at 'B-/RR4'. In addition, Fitch has simultaneously withdrawn GOL Finance's foreign and local currency long-term IDRs. The IDRs of GOL Finance are being withdrawn because the entity is an SPV and the credit quality of the notes issued by it reflects the guarantees provided by GOL and VRG Linhas Aereas S.A. (VRG). GOL, the parent company of Gol LuxCo S.A. (Gol LuxCo), recently executed the issuer substitution process for the USD200 million unsecured notes due in February 2023 issued by VRG. Gol LuxCo has assumed the USD200 unsecured notes. GOL and VRG jointly and severally, irrevocably and unconditionally, guarantee the notes. The Rating Outlook has been revised to Stable from Negative. The ratings reflect GOL's leading market position in the Brazilian domestic market, limited geographic diversification, good liquidity supported by equity increase, high adjusted leverage, and negative free cash (FCF) flow generation. Also factored into the ratings is the high degree of 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. The 'B-/RR4' rating of the company's unsecured public debt reflects average recovery prospects in the event of a default. The revision of the Outlook to Stable from Negative reflects the positive trend in the company's margins, liquidity, and business deleverage taking place during 2013. This recovery results from the company's actions taken on its seat supply management, revenue and cost structures, and equity support. The more rational capacity management prevailing in the Brazilian domestic market supporting a better pricing environment is also incorporated. RATING DRIVERS: Market Position and Business Diversification Incorporated: GOL has a strong business position in the Brazilian domestic market with a market share of 38%, as measured by revenues per kilometers, at the end of December 2013. GOL's operational results are highly correlated to the domestic economy. The ratings also consider the company's business model, which is primarily oriented to Brazil's domestic passenger market, representing approximately 90% of its revenues, and has limited product and geographic diversification. The company maintains a high exposure to FX depreciation risk as approximately 90% of the company's 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. Business Turnaround Driven by Margin Recovery: Despite the devaluation of the local currency and the slowdown of the Brazilian economy, the company was able to improve margins primarily due to a more benign competitive environment, capacity rationalization, and cost cutting actions. After reaching EBITDAR margins of 9% and 3% in 2011 and 2012, respectively, the company achieved margins of 11% for LTM September 2013. GOL is expected to close 2013 with EBITDAR margin around 16%. The company's margin recovery reflects the more elevated pricing environment for the Brazilian domestic market in recent quarters driven by main players' capacity reduction. It also results from the company's several actions taken to adjust its non-fuel cost. GOL's labor force was reduced in 12% during 2013. Rational Seat Supply to Continue: During 2013 GOL managed to reduce its available seat capacity (ASK) in the domestic market by approximately 7.4%, closing the year with 44.1 billion of ASK in this segment. TAM S.A., the other main player in the Brazilian domestic market also reduced capacity by approximately 8% during the same period. Smaller players AZUL and Avianca Brazil increased capacity by 13% and 30% during 2013. TAM, AZUL, and Avianca Brazil closed 2013 with market participations in the Brazilian domestic market of 39%, 16% and 7%, respectively. GOL and TAM are expected to continue with a rational capacity management during 2014 resulting in maintaining similar levels of capacity in the domestic market. The main two players in the domestic market should continue to drive pricing environment during 2014 as their frequencies and participation in Brazil's main markets support its ability to influence the pricing environment more than smaller players. Good Liquidity, Cash to LTM Revenue at 31%: GOL had a cash position of BRL2.6 billion by the end of September 2013, representing around 31% of the company's LTM September revenues (BRL8.4 billion); it faces debt amortizations of approximately BRL450 million during the next 12 months ended in September 2014. During the fourth quarter of 2015 the company has a BRL600 million debt payment due related to its 4th debenture, the company is planning to refinance this debt during the first half of 2014. Steps taken by the company to boost its liquidity in recent quarters include: the issuance of USD200 million unsecured notes to refinance debt in February 2013; raising BRL1.1 billion through the completion of Similes S.A. IPO during second-quarter 2013; obtaining waivers related to its local debentures. The company's exposure to Venezuela is estimated at around 5% to 7% of its LTM revenues, which Fitch views as low relative to GOL's liquidity. The ratings incorporate the view that GOL will continue to maintain high liquidity with the cash/LTM revenue above 20%. Business Deleverage: During LTM September 2013, the company's EBITDAR and total adjusted debt reached levels of BRL931 million and BRL10.1 billion, respectively. The company's adjusted gross and net leverage (total adjusted debt/ EBITDAR) remains high at 11x and 8x for the LTM ended September 2013. Leverage has been consistently declining during last quarters reflecting better cash flow generation measured by EBITDAR. The ratings factor in continued improvement in the company's net adjusted leverage ratio around 6x for full year 2013. The company's FCF generation was negative during LTM September 2013 by BRL78 million, resulting in a FCF margin (LTM FCF/ LTM Revenues) of -2.3% vs. -9.2% in 2012. RATING SENSITIVITIES: The Stable Outlook for GOL's ratings incorporate the view that the consolidated adjusted net leverage and liquidity, measured as total cash to LTM revenues, will remain around 6x and 25%, respectively, during the 2014. The ratings also factor in the expectation that the company will maintain neutral-to-slightly negative FCF during 2014. Negative Rating Action: A negative rating action could be triggered by a deterioration of the company's credit protection measures resulting from the some combination of the following factors: a fuel spike, significant devaluation of the local currency versus the U.S. dollar, excess capacity in the sector affecting pricing environment, and falling demand scenario affecting Brazil's domestic market Positive Rating Action: Fitch could consider a positive rating action if GOL generates margins and FCF higher than the expected levels incorporated in the ratings, resulting in lower financial adjusted leverage while keeping current liquidity profile. Contact: Primary Analyst Jose Vertiz Director +1-212-908-0641 Fitch Ratings, Inc. One State Street Plaza New York, NY 10004 Secondary Analyst Debora Jalles Director 011 5521 4503 2629 Committee Chairperson Joseph Bormann, CFA Managing Director +1-312-368-3349 Media Relations: Elizabeth Fogerty, New York, Tel: +1 (212) 908 0526, Email: elizabeth.fogerty@fitchratings.com. Applicable Criteria and Related Research: Applicable Criteria and Related Research: --'Corporate Rating Methodology' (Aug. 5, 2013). Applicable Criteria and Related Research: Corporate Rating Methodology: Including Short-Term Ratings and Parent and Subsidiary Linkage here Additional Disclosure Solicitation Status here ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: here. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEBSITE 'WWW.FITCHRATINGS.COM'. PUBLISHED RATINGS, CRITERIA AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. 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