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

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

Business Wire

NEW YORK -- March 19, 2014

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In addition, Fitch has simultaneously withdrawn GOL Finance's foreign and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 The IDRs of GOL Finance are being withdrawn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.

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

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=715139

Additional Disclosure

Solicitation Status

http://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=824356

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