February 22, 2018 / 6:38 PM / a year ago

Bond changes insulate Avolon from HNA woes

DUBLIN, Feb 22 (Reuters) - Ireland’s aircraft leasing company Avolon has added an extra layer of protection for bondholders in a bid to dispel concerns about the risk of it being stripped for cash by China’s HNA Group, ratings agency Fitch said on Thursday.

Avolon has come under scrutiny over its links to HNA and credit ratings analysts have been pressing for tougher safeguards against it being forced to bail out the cash-strapped Chinese conglomerate. Avolon is fully owned by Bohai Capital, which is 52-percent owned by HNA Group.

HNA has had to embark on a slew of fundraising efforts in recent months to address a liquidity crunch.

By amending its guarantee structure, Avolon had further formalised the segregation of its financial resources from that of Bohai Capital and HNA Group, Fitch said in a note following a briefing Avalon had with bondholders after its results.

“The introduction of the mandatory redemption covenant is expected to limit payments from Avolon to Bohai Capital,” the ratings agency said, affirming its ‘BB’ rating of Avolon.

“Fitch views this development favourably because it places explicit limitations on Bohai’s ability to extract capital from Avolon in addition to the pre-existing insulation framework.”

In the third quarter of 2017 Avolon lent Bohai $365 million, a move described by Avolon’s CEO in January as a one-off.

Avolon, the world’s third-largest aircraft lessor, plans to pay a dividend of $250 million to Bohai Capital out of its 2017 earnings though, Fitch said.

Avolon had earlier posted a full year profit after tax of $550 million, up from $345 million in 2016.

A spokesman for Avolon said the company would not comment publicly beyond the full year figures released on Thursday. He did, however, confirm a call with bondholders had taken place.

$1 = 6.3471 Chinese yuan renminbi Reporting by Graham Fahy, editing by Padraic Halpin and Elaine Hardcastle

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