Reuters logo
Fitch Expects to Rate Aviation Capital Group's $1B Senior Unsecured Debt Issuance 'BBB'
January 12, 2017 / 3:54 PM / a year ago

Fitch Expects to Rate Aviation Capital Group's $1B Senior Unsecured Debt Issuance 'BBB'

(The following statement was released by the rating agency) CHICAGO, January 12 (Fitch) Fitch Ratings expects to assign a 'BBB(Exp)' rating to Aviation Capital Group Corp.'s (ACG) planned issuance of up to $1 billion of senior unsecured notes. See the full list of rating actions at the end of this release. KEY RATING DRIVERS IDR AND SENIOR DEBT The expected rating is equalized with ACG's existing senior unsecured debt rating and Long-Term Issuer Default Rating (LT IDR), reflecting Fitch's expectation that there will not be a material impact to the company's leverage metrics as far as its stated target of 3.0x-3.5x on a debt-to-equity basis, as proceeds will be used to repay currently outstanding amounts under ACG's revolving credit facility, and for general corporate purposes. Leverage, based on debt-to-tangible equity, was 2.73x, as of Sept. 30, 2016. On a pro forma basis including the proposed issuance and debt repayment, leverage is expected to be 2.84x, as of the same date. The new notes will rank equally with existing senior unsecured debt in ACG's capital structure. The equalization of the unsecured debt ratings with the LT IDR of 'BBB' reflects ACG's predominately unsecured funding profile and significant pool of available unencumbered assets, which provides material support to the unsecured noteholders. This is viewed positively by Fitch, as it provides additional balance sheet flexibility in times of market stress. Fitch last took rating actions on ACG following the agency's broader aircraft lessor industry review conducted on July 26, 2016, at which point ACG was upgraded to 'BBB' from 'BBB-'. The upgrade was supported by ACG's improved standalone financial metrics, notably a reduced leverage appetite, consistent operating margins and profitability metrics over time, as well as a favorable funding profile and strong balance sheet flexibility relative to peers. Rating constraints specific to ACG include modestly weaker net spreads relative to peers given the company's focus on narrowbody aircraft in the first quarter of their useful life as well as its strategic focus on longer-duration funding, which together generate lower yields and modestly higher cost of funding relative to peers. Rating constraints applicable to the broader aircraft leasing industry include the monoline and wholesale-funded nature of the business model and susceptibility of air passenger traffic levels to economic cycles and other exogenous shocks. RATING SENSITIVITIES IDR AND SENIOR DEBT The ratings of the senior unsecured debt are sensitive to changes in ACG's LT IDR and the level of unencumbered balance sheet assets in a stressed scenario, relative to outstanding debt. A decline in the level of unencumbered asset coverage combined with a material increase in the use of secured debt could result in the notching between the LT IDR and the unsecured debt. Fitch does not envision positive rating momentum for ACG's IDR or unsecured debt ratings in the near term. However, an upgrade of the standalone credit profile over the long term could be driven by a demonstrated ability to manage balance sheet leverage below 3x, while maintaining an above-industry peer average earnings profile. Fitch will continue to monitor the consistency of ACG's fleet age, unencumbered assets, operating cash flow generation, liquidity and funding diversity, while managing the additional expectations and demands of a publicly traded company. Positive rating actions could also be driven by more explicit forms of support from PLIC, though this is not currently anticipated by Fitch particularly in light of the partial IPO under consideration. Conversely, negative rating momentum could be driven by significant deterioration in ACG's operating performance or net margins, or a material decline in operating cash flow generation resulting from a significant weakening of sector or economic conditions. A material shift in current fleet or funding strategy, a sustained increase in balance sheet leverage above 3.5x and/or a reduced commitment by management to manage leverage below 3.5x could result in negative rating momentum. Negative momentum could also arise if Fitch's assessment of PLIC's willingness or ability to provide timely support to ACG changes. More specifically, ratings could be adversely affected under a scenario where PLIC no longer retains a majority and controlling interest in ACG, whereby Fitch would remove the one notch of support uplift and ACG would be rated on the basis of its standalone credit risk profile. ACG is a privately held, wholly owned subsidiary of PLIC, and a leading global lessor and manager of 266 commercial aircraft to 100 airlines in over 45 countries. The aircraft portfolio totaled $7.89 billion in net book value as of Sept. 30, 2016. Fitch assigns the following ratings: Aviation Capital Group Corp. --Senior unsecured debt 'BBB(EXP)' Fitch currently rates the issuer as follows: Aviation Capital Group Corp. --Long-Term IDR 'BBB'; --Senior unsecured debt 'BBB'. The Rating Outlook is Stable. Contact Primary Analyst Johann Juan Director +1-312-368-3339 Fitch Ratings, Inc. 70 West Madison Street Chicago, IL 60602 Secondary Analyst Sean Pattap Senior Director +1-212-908-0642 Committee Chairperson Nathan Flanders Managing Director +1-212-908-0827 Media Relations: Hannah James, New York, Tel: + 1 646 582 4947, Email: Date of Relevant Committee: July 25, 2016 Summary of Financial Statement Adjustments: Fitch has made no adjustments that are not disclosed within the company's financial statements. Additional information is available on Applicable Criteria Global Non-Bank Financial Institutions Rating Criteria (pub. 15 Jul 2016) here Additional Disclosures Solicitation Status here Endorsement Policy here ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: here. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEB SITE AT WWW.FITCHRATINGS.COM. PUBLISHED RATINGS, CRITERIA, AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE, AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE CODE OF CONDUCT SECTION OF THIS SITE. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH WEBSITE. Copyright © 2017 by Fitch Ratings, Inc., Fitch Ratings Ltd. and its subsidiaries. 33 Whitehall Street, NY, NY 10004. Telephone: 1-800-753-4824, (212) 908-0500. Fax: (212) 480-4435. Reproduction or retransmission in whole or in part is prohibited except by permission. All rights reserved. In issuing and maintaining its ratings and in making other reports (including forecast information), Fitch relies on factual information it receives from issuers and underwriters and from other sources Fitch believes to be credible. Fitch conducts a reasonable investigation of the factual information relied upon by it in accordance with its ratings methodology, and obtains reasonable verification of that information from independent sources, to the extent such sources are available for a given security or in a given jurisdiction. The manner of Fitch's factual investigation and the scope of the third-party verification it obtains will vary depending on the nature of the rated security and its issuer, the requirements and practices in the jurisdiction in which the rated security is offered and sold and/or the issuer is located, the availability and nature of relevant public information, access to the management of the issuer and its advisers, the availability of pre-existing third-party verifications such as audit reports, agreed-upon procedures letters, appraisals, actuarial reports, engineering reports, legal opinions and other reports provided by third parties, the availability of independent and competent third- party verification sources with respect to the particular security or in the particular jurisdiction of the issuer, and a variety of other factors. Users of Fitch's ratings and reports should understand that neither an enhanced factual investigation nor any third-party verification can ensure that all of the information Fitch relies on in connection with a rating or a report will be accurate and complete. Ultimately, the issuer and its advisers are responsible for the accuracy of the information they provide to Fitch and to the market in offering documents and other reports. In issuing its ratings and its reports, Fitch must rely on the work of experts, including independent auditors with respect to financial statements and attorneys with respect to legal and tax matters. Further, ratings and forecasts of financial and other information are inherently forward-looking and embody assumptions and predictions about future events that by their nature cannot be verified as facts. As a result, despite any verification of current facts, ratings and forecasts can be affected by future events or conditions that were not anticipated at the time a rating or forecast was issued or affirmed. The information in this report is provided "as is" without any representation or warranty of any kind, and Fitch does not represent or warrant that the report or any of its contents will meet any of the requirements of a recipient of the report. A Fitch rating is an opinion as to the creditworthiness of a security. This opinion and reports made by Fitch are based on established criteria and methodologies that Fitch is continuously evaluating and updating. Therefore, ratings and reports are the collective work product of Fitch and no individual, or group of individuals, is solely responsible for a rating or a report. The rating does not address the risk of loss due to risks other than credit risk, unless such risk is specifically mentioned. Fitch is not engaged in the offer or sale of any security. All Fitch reports have shared authorship. Individuals identified in a Fitch report were involved in, but are not solely responsible for, the opinions stated therein. The individuals are named for contact purposes only. A report providing a Fitch rating is neither a prospectus nor a substitute for the information assembled, verified and presented to investors by the issuer and its agents in connection with the sale of the securities. Ratings may be changed or withdrawn at any time for any reason in the sole discretion of Fitch. Fitch does not provide investment advice of any sort. Ratings are not a recommendation to buy, sell, or hold any security. Ratings do not comment on the adequacy of market price, the suitability of any security for a particular investor, or the tax-exempt nature or taxability of payments made in respect to any security. Fitch receives fees from issuers, insurers, guarantors, other obligors, and underwriters for rating securities. Such fees generally vary from US$1,000 to US$750,000 (or the applicable currency equivalent) per issue. In certain cases, Fitch will rate all or a number of issues issued by a particular issuer, or insured or guaranteed by a particular insurer or guarantor, for a single annual fee. Such fees are expected to vary from US$10,000 to US$1,500,000 (or the applicable currency equivalent). The assignment, publication, or dissemination of a rating by Fitch shall not constitute a consent by Fitch to use its name as an expert in connection with any registration statement filed under the United States securities laws, the Financial Services and Markets Act of 2000 of the United Kingdom, or the securities laws of any particular jurisdiction. Due to the relative efficiency of electronic publishing and distribution, Fitch research may be available to electronic subscribers up to three days earlier than to print subscribers. For Australia, New Zealand, Taiwan and South Korea only: Fitch Australia Pty Ltd holds an Australian financial services license (AFS license no. 337123) which authorizes it to provide credit ratings to wholesale clients only. Credit ratings information published by Fitch is not intended to be used by persons who are retail clients within the meaning of the Corporations Act 2001

0 : 0
  • narrow-browser-and-phone
  • medium-browser-and-portrait-tablet
  • landscape-tablet
  • medium-wide-browser
  • wide-browser-and-larger
  • medium-browser-and-landscape-tablet
  • medium-wide-browser-and-larger
  • above-phone
  • portrait-tablet-and-above
  • above-portrait-tablet
  • landscape-tablet-and-above
  • landscape-tablet-and-medium-wide-browser
  • portrait-tablet-and-below
  • landscape-tablet-and-below