Fitch Ratings has downgraded GOL Linhas Aereas Inteligentes S.A.'s (GOL) and its subsidiary GOL Linhas Aereas S.A.'s Long-Term Foreign and Local Currency Issuer Default Ratings (IDRs) to 'D' from 'CCC-', and its Long-Term National Scale Rating to 'D(bra)' from 'CCC-(bra)' following the company's Chapter 11 bankruptcy protection filing on Jan. 25, 2024.
Fitch has also downgraded GOL Finance Inc.'s unsecured bonds to 'C'/'RR5' from 'CC'/'RR5'.
The company has also indicated it has entered the U.S. legal process with a financing commitment for USD950 million in new debtor-in-possession (DIP) financing from members of the Ad Hoc Group of Abra bondholders, as well as certain other Abra bondholders. The company will seek access to this funding as part of its First Day hearing in the coming days. The financing is subject to court approval.
Key Rating Drivers
Chapter 11 Process: On Jan. 25 2024, GOL announced that have voluntarily filed for Chapter 11 in the U.S. Bankruptcy Court, seeking to restructure their finances while continuing to fully operate. This follows GOL's ongoing difficult renegotiation with lessors over the past months and sequential delays in new aircraft delivery from its manufacturer. Despite operating cash flow improvement since pandemic, the higher lease payments following their reduction/postponements during the COVID-19 pandemic crisis, in addition to elevated interest rates have been pressuring GOL's FCF generation, thus resulting in an unsustainable debt profile.
At Sept. 30 2023, GOL's total debt was BRL20.3 billion, per Fitch's criteria. Excluding leasing obligations (BRL9.8 billion), the majority of the debt refers to cross-border bonds (BRL9.3 billion). Readily available cash, per Fitch's criteria, was BRL905 million. At the same period, GOL had around USD200 million (out of USD450 million) of available credit line with its shareholder Abra Group Limited (Abra). This transaction with Abra was a result of another debt restructuring transaction that GOL announced during March 2023, that also included a credit line of around USD450 million.
Derivation Summary
GOL's downgrade to 'D' follows its Jan. 25, 2024 Chapter 11 bankruptcy filing. The bankruptcy filing follows operating pressures since the COVID-19 pandemic.
Recovery Analysis
Key Recovery Rating Assumptions
The recovery analysis assumes that GOL would be considered a going concern in bankruptcy and that the company would be reorganized rather than liquidated. Fitch has assumed a 10% administrative claim.
Going-Concern Approach: GOL's going concern EBITDA is BRL1.9 billion which incorporates the low-end expectations of GOL's EBITDA post-pandemic, adjusted by lease expenses. The going-concern EBITDA estimate reflects Fitch's view of a sustainable, post-reorganization EBITDA level, upon which Fitch bases the valuation of the company. The enterprise value (EV)/EBITDA multiple applied is 5.5x, reflecting GOL's strong market position in the Brazil.
Fitch applies a waterfall analysis to the post-default EV based on the relative claims of the debt in the capital structure. The debt waterfall assumptions consider the company's proforma total debt including the recently announced DIP Financing. These assumptions result in a recovery rate for the for the unsecured notes within the 'RR5' range.
RATING SENSITIVITIES
Rating sensitivities are not applicable given the company's Chapter 11 bankruptcy filing.
Issuer Profile
GOL is a leading Brazilian airline, with around 34% market share in the domestic market, per revenue per RPK in 2022. As of Sept. 30 2023, GOL's fleet included 141 Boeing 737 aircraft, with 97 NGs, 39 MAXs and five Cargo NGs
REFERENCES FOR SUBSTANTIALLY MATERIAL SOURCE CITED AS KEY DRIVER OF RATING
The principal sources of information used in the analysis are described in the Applicable Criteria.
ESG Considerations
Gol Linhas Aereas Inteligentes S.A has an ESG Relevance Score of '4' for Management Strategy due to announcement of a corruption case and charges implemented by the SEC and Department of Justice (DOJ) during 2022. This has a negative impact on the ratings in conjunction with other factors.
GOL has an ESG Relevance Score of '4' for Group Structure due to the its relatively new and larger airline operational group (ABRA), which has a negative impact on the credit profile, and is relevant to the rating in conjunction with other factors.
GOL has an ESG Relevance Score of '4' for Governance Structure due to the relatively new operational group (ABRA) that has lately demonstrated aggressive financial policies, which has a negative impact on the credit profile, and is relevant to the rating in conjunction with other factors.
The highest level of ESG credit relevance is a score of '3', unless otherwise disclosed in this section. A score of '3' means ESG issues are credit-neutral or have only a minimal credit impact on the entity, either due to their nature or the way in which they are being managed by the entity. Fitch's ESG Relevance Scores are not inputs in the rating process; they are an observation on the relevance and materiality of ESG factors in the rating decision. For more information on Fitch's ESG Relevance Scores, visit https://www.fitchratings.com/topics/esg/products#esg-relevance-scores.
GOL LINHAS AÉREAS INTELIGENTES S.A. 
