Shares of in-flight internet service provider Gogo (NASDAQ: GOGO) were trading 16% lower at 11:15 a.m. EDT. Investors were rattled when Moody's lowered the company's credit ratings across the board.
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In a research note published after the closing bell on Monday, Moody's lowered Gogo's corporate credit rating and probability-of-default grade from B3 to Caa1. The speculative grade liquidity rating fell from SGL-2 to SGL-3. In plain English, Moody's view of Gogo moved from "highly speculative" to "substantial risks," with a negative outlook that could lead to even further rating cuts in the near term.
In support of these changes, Moody's cited operational difficulties and weak liquidity. Cash flows are expected to stay negative at least into 2019 as Gogo invests its new 2Ku service into hundreds of airplanes for dozens of airlines. For the moment, Gogo's ratings are not plunging into "default imminent" territory quite yet because the company's market position in North America is quite strong.
This is a tricky situation. Gogo's future could be exceedingly bright if the company survives long enough to complete that promising 2Ku rollout on a global level. But cash reserves are bone dry, and these reduced credit ratings certainly won't help Gogo find more and better funding sources until the storm blows over.
Turnaround hunters might want to make a move on Gogo at these prices, nearly 50% below year-ago levels. But that investment carries a lot of risk, and the company might not make it without resorting to bankruptcy or a deep-discount buyout exit along the way.
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