S&P lifts Gol Linhas to CCC after debt exchange

S&P said it raised the global scale ratings to CCC from SD (selective default) on Gol Linhas Aereas Inteligentes SA.

The agency also said it raised the national scale ratings on the company to brCCC from SD, along with the issue-level ratings on its senior unsecured notes to CCC from D.

S&P also affirmed the BB rating on the company’s term loan, reflecting the guarantee that Delta Air Lines provides.

The outlook is negative.

S&P also said it did not change the recovery rating of 4 on Gol Linhas’s senior unsecured loans, reflecting 30% to 50% expected default recovery.

The agency also left unchanged the recovery rating of 5 on the term loan, indicating 10% to 30% expected default recovery.

The upgrades follow the completion of a debt exchange in which Gol Linhas offered considerably less value on its obligations than originally promised, S&P explained.

The CCC ratings reflect that despite GOL’s continuing efforts to sell aircraft, reduce debt by terminating leases and optimize its fleet to improve operating efficiency, the company’s capital structure is unsustainable in the medium term, with significant interest burden and limited operating cash flow generation amid weak market conditions and weak Brazilian real, the agency said.

The company also faces significant short-term obligations and working capital needs, S&P added.

The company does remain on track with its plan to reduce capacity by selling own aircraft and returning leased aircraft, but weak demand and intense competition should continue to limit the industry’s profitability, the agency said.

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