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AerCap Holdings N.V. -- Moody's affirms AerCap's Baa3 long-term senior unsecured ratings with a negative outlook

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Rating Action: Moody's affirms AerCap's Baa3 long-term senior unsecured ratings with a negative outlookGlobal Credit Research - 10 Mar 2021New York, March 10, 2021 -- Moody's Investors Service, ("Moody's") has affirmed the Baa3 backed long-term issuer rating of AerCap Holdings N.V. (AerCap) and the Baa3 senior unsecured ratings of subsidiaries AerCap Ireland Capital D.A.C., AerCap Global Aviation Trust (senior unsecured shelf (P)Baa3) and International Lease Finance Corporation. The outlooks remain negative. This follows AerCap's announcement that it will acquire GE Capital Aviation Services (GECAS) from General Electric Company (GE) for approximately $30 billion.Affirmations:..Issuer: AerCap Global Aviation Trust....Junior Subordinated Regular Bond/Debenture, Affirmed Ba1 (hyb)....Senior Unsecured Shelf, Affirmed (P)Baa3..Issuer: AerCap Holdings N.V..... Issuer Rating, Affirmed Baa3....Junior Subordinated Regular Bond/Debenture, Affirmed Ba2 (hyb)....Senior Unsecured Shelf, Affirmed (P)Baa3..Issuer: AerCap Ireland Capital D.A.C....Senior Unsecured Regular Bond/Debenture, Affirmed Baa3....Senior Unsecured Shelf, Affirmed (P)Baa3..Issuer: Delos Finance SARL....Senior Secured Bank Credit Facility, Affirmed Baa2..Issuer: ILFC E-Capital Trust I....Pref. Stock Preferred Stock, Affirmed Ba1 (hyb)..Issuer: ILFC E-Capital Trust II....Pref. Stock Preferred Stock, Affirmed Ba1 (hyb)..Issuer: International Lease Finance Corporation....Pref. Stock Preferred Stock, Affirmed Ba2 (hyb)....Senior Unsecured Regular Bond/Debenture, Affirmed Baa3Outlook Actions:..Issuer: AerCap Global Aviation Trust....Outlook, Remains Negative..Issuer: AerCap Holdings N.V.....Outlook, Remains Negative..Issuer: AerCap Ireland Capital D.A.C....Outlook, Remains Negative..Issuer: Delos Finance SARL....Outlook, Remains Negative..Issuer: ILFC E-Capital Trust I....Outlook, Remains Negative..Issuer: ILFC E-Capital Trust II....Outlook, Remains Negative..Issuer: International Lease Finance Corporation....Outlook, Remains NegativeRATINGS RATIONALEMoody's affirmed AerCap's ratings in expectation that the company's proposed acquisition of GECAS will enhance its already strong competitive positioning in commercial aircraft leasing, based on increased earnings and cash flow generating power from a larger high-quality fleet and increased customer base. AerCap's ratings also reflect the company's continued commitment to strong liquidity and capital management, including raising additional funding in order to maintain a liquidity sources to uses ratio of at least 150% at closing and reducing leverage post-closing to meet its 2.7x target adjusted debt-to-equity ratio. The outlook remains negative, reflecting the execution risks associated with AerCap's need to raise significant acquisition financing, as well as our expectation that the current downturn in the airline industry will result in elevated risks to AerCap's earnings, cash flow, and liquidity and capital positions until a recovery in air travel demand strengthens airlines operations and increases their need for leased aircraft.AerCap will acquire GECAS for total consideration including 111.5 million of newly issued AerCap shares, $24 billion of cash and $1 billion of AerCap notes and/or cash. Based on an AerCap share price of $45, the transaction consideration has a value of approximately $30 billion. GE has agreed to purchase $1 billion of subordinated or senior notes from AerCap, resulting in a net cash payment to GE of $24 billion. At closing, GE will have a 46% minority stake in AerCap and will be entitled to nominate two directors to AerCap's Board of Directors. The transaction is expected to close in the fourth quarter of 2021, subject to AerCap shareholder and regulatory approvals in multiple jurisdictions.The transaction will significantly increase AerCap's operational scale, making the company the largest aircraft leasing franchise globally. AerCap's assets totaled $42 billion at 31 December 2020, while GECAS had assets of $36 billion at the same date. Because AerCap has successful prior experience integrating large acquisitions, Moody's expects that the company's integration of the GECAS fleet and operations will be manageable.The transaction will improve the risk characteristics of AerCap's fixed-wing aircraft fleet. AerCap's combined fleet of over 2,000 aircraft will have a lower percentage of wide-body aircraft (approximately 40% versus 47% currently); wide-bodies are more challenging lease assets because they have a smaller user base and are more costly to acquire, maintain and transition than narrow-body aircraft. Further fleet improvements are embedded in the combined order book of 493 new-technology primarily narrow-body aircraft, which will further AerCap's transition to a fleet comprised of the most efficient and in-demand commercial aircraft. Importantly, nearly all of AerCap's new deliveries through 2022 are committed to leases, while just a modest number of GECAS new deliveries have yet to be committed to leases.AerCap's operational diversity will increase with the addition of GECAS' over 900 owned and managed aircraft engines and over 300 owned helicopters. Moody's expects that AerCap's pro forma customer concentrations will decline, reflecting an increase in customers to approximately 300 from 200 currently, which should reduce the company's performance volatility.AerCap has obtained commitments for $24 billion of bridge financing from banks to fund its payment to GE at closing. The large cash payment reflects the fact that GECAS has immaterial debt capital of its own that will carry over into the combined entity. A credit challenge associated with the transaction includes AerCap's need to raise longer-term debt capital to replace the bridge financing. AerCap's larger post-transaction scale will significantly increase its exposure to the confidence-sensitivity of the debt capital markets, a liquidity constraint given the specialized nature of aircraft leasing and its high exposure to the weakened airline industry.Additionally, the transaction will have an uncertain effect on AerCap's debt-to-equity leverage at closing, given the potential fluctuations in the company's share price that will drive the value of the shares AerCap issues to GE as part of the transaction consideration. AerCap remains committed to a 2.7x adjusted debt-to-equity leverage ratio, which is consistent with Moody's investment-grade criteria. Moody's expects that AerCap will take steps to reduce leverage to that level should it be necessary post-closing, though the length of time required to do so is uncertain, which could affect Moody's rating.The negative outlook reflects the execution risks associated with AerCap's transaction funding requirements as well as our expectation that the deep global downturn in the airline industry elevates risks to AerCap's earnings, cash flow, and liquidity and capital positions until airlines' demand for leased aircraft rises in connection with a recovery in air travel volumes. Moody's base case expectation is that air travel volumes will reach about 50% of 2019 levels by the end of 2021 and rise to approximately 90% by the end of 2023.Moody's regards the coronavirus outbreak as a social risk under its ESG framework, given the substantial implications for public health and safety. Today's rating action reflect the negative effects on AerCap of the breadth and severity of the downturn in aviation, and the deterioration in credit quality, profitability, capital and liquidity it has triggered. The rating actions also reflect AerCap's governance as a key ratings consideration, given the company's acquisition of GECAS will result in changes to its ownership and board representation.FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGSMoody's could revise AerCap's outlook to stable if: 1) the company demonstrates material progress raising required transaction financing; 2) recovery in the aviation sector, as indicated by trends in air travel volumes, is expected to be consistent with or stronger than Moody's base case; and 3) the company's share price trends support an expectation that AerCap's financial flexibility remains sound, as reflected by our anticipation that adjusted debt-to-tangible net worth leverage (Moody's adjusted) at closing will be less than 3.5x.AerCap's ratings could be upgraded if: 1) the company's GECAS acquisition execution and integration risks are well managed; 2) the strength of recovery in air travel volumes exceeds Moody's base case; 3) the company is expected to generate consistently stronger and more stable profitability and cash flow ratios compared to peers; 4) the company continues to demonstrate effective liquidity management post-acquisition, during the aviation sector downturn as well as post-recovery; 5) fleet integration, residual value risks and exposure concentrations are well managed including through the downturn; and 6) the company's debt-to-tangible net worth leverage ratio declines to less than 3.0x (Moody's adjusted).AerCap's ratings could be downgraded if: 1) liquidity coverage (Moody's sources-to-uses over a one-year horizon) declines to less than 150% during the downturn or less than 120% long-term; 2) recovery in air travel volumes declines materially below Moody's base case; 3) revenues weaken and costs increase to the extent that the company will be unable to generate materially improved profits and operating cash flow by the end of 2023; 4) debt-to-tangible equity leverage increases to more than 3.8x (Moody's adjusted); 5) the company's competitive positioning otherwise weakens.The principal methodology used in these ratings was Finance Companies Methodology published in November 2019 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1187099. Alternatively, please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.REGULATORY DISCLOSURESFor further specification of Moody's key rating assumptions and sensitivity analysis, see the sections Methodology Assumptions and Sensitivity to Assumptions in the disclosure form. Moody's Rating Symbols and Definitions can be found at: https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_79004.For ratings issued on a program, series, category/class of debt or security this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series, category/class of debt, security or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody's rating practices. For ratings issued on a support provider, this announcement provides certain regulatory disclosures in relation to the credit rating action on the support provider and in relation to each particular credit rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides certain regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.For any affected securities or rated entities receiving direct credit support from the primary entity(ies) of this credit rating action, and whose ratings may change as a result of this credit rating action, the associated regulatory disclosures will be those of the guarantor entity. Exceptions to this approach exist for the following disclosures, if applicable to jurisdiction: Ancillary Services, Disclosure to rated entity, Disclosure from rated entity.The ratings have been disclosed to the rated entity or its designated agent(s) and issued with no amendment resulting from that disclosure.These ratings are solicited. Please refer to Moody's Policy for Designating and Assigning Unsolicited Credit Ratings available on its website www.moodys.com.Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.Moody's general principles for assessing environmental, social and governance (ESG) risks in our credit analysis can be found at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1243406.At least one ESG consideration was material to the credit rating action(s) announced and described above.The Global Scale Credit Rating on this Credit Rating Announcement was issued by one of Moody's affiliates outside the EU and is endorsed by Moody's Deutschland GmbH, An der Welle 5, Frankfurt am Main 60322, Germany, in accordance with Art.4 paragraph 3 of the Regulation (EC) No 1060/2009 on Credit Rating Agencies. Further information on the EU endorsement status and on the Moody's office that issued the credit rating is available on www.moodys.com.The Global Scale Credit Rating on this Credit Rating Announcement was issued by one of Moody's affiliates outside the UK and is endorsed by Moody's Investors Service Limited, One Canada Square, Canary Wharf, London E14 5FA under the law applicable to credit rating agencies in the UK. Further information on the UK endorsement status and on the Moody's office that issued the credit rating is available on www.moodys.com.Please see www.moodys.com for any updates on changes to the lead rating analyst and to the Moody's legal entity that has issued the rating.Please see the ratings tab on the issuer/entity page on www.moodys.com for additional regulatory disclosures for each credit rating. Mark L. Wasden VP - Senior Credit Officer Financial Institutions Group Moody's Investors Service, Inc. 250 Greenwich Street New York, NY 10007 U.S.A. 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