Heavily Shorted Gogo Sinks to Record Low After Moody's Downgrade

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(Bloomberg) -- Gogo Inc. skids as much as 32 percent to a record low, extending losses from Friday when the firm withdrew a slew of financial forecasts. Since then, Moody’s downgraded the company’s corporate rating and analysts have been negative on the outlook for shares.

  • Moody’s downgraded Gogo’s rating last night to Caa1 from B3, downgraded the probability of default rating and changed the outlook to negative
  • Cowen credit research analyst Lance Vitanza, in a note to clients today, said he sees the stock falling further in the wake of disappointing first-quarter earnings; expects converts and straight notes to benefit from the new financial review
  • Morgan Stanley equity analyst Simon Flannery reiterated underweight rating on Friday, citing weak profitability in addition to elevated cash burn; he added that "some" additional capital is likely needed, citing management comments
  • Short interest on Gogo is 29.3 million shares, or around $231 million, and has held relatively stable as short sellers aren’t buying to cover or shorting significantly more even with the recent price drop, according to Ihor Dusaniwsky of financial technology and analytics firm S3 Partners
  • That may be due to the cost to borrow shares getting more expensive, Dusaniwsky said, adding that there is potential for "forced short covering due to a lack of stock borrow supply"
  • Almost a quarter of all equity shareholders are hedge funds, according to Bloomberg data, including activist Senator Investment Group, which boosted its stake to 6.5 percent in March and said it may continue talks with management on a variety of matters.
  • Other holders, as of Dec. 31 unless otherwise noted: Stelliam Investment with 9.6% stake, Billings Capital 3.9%, Frontier Capital 3.1% (as of March 31), Valinor Management 1.9%, and Penn Capital 1.4%
  • Gogo didn’t immediately respond to email or phone call request for comment
  • Gogo has 2 buys, 3 holds, 2 sells with avg PT $6.88: Bloomberg data

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