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Rating Action: Moody's rates Aircastle's senior notes Baa3, negative outlook
Global Credit Research - 21 Jan 2021
New York, January 21, 2021 -- Moody's Investors Service, ("Moody's") assigned a long-term senior unsecured rating of Baa3 to Aircastle Limited's ("Aircastle") senior notes due 2028. Aircastle's issuer outlook is negative.
..Issuer: Aircastle Limited
....Senior Unsecured Regular Bond/Debenture, Assigned Baa3
Moody's assigned a Baa3 rating to Aircastle's senior unsecured notes based on the company's credit attributes as an established commercial aircraft leasing company, the notes' senior priority and proportion in Aircastle's capital structure, and the strength of the notes' asset coverage. The terms of the new notes are consistent with those of Aircastle's most recently issued senior unsecured notes. The company intends to use the proceeds of the notes for general corporate purposes, which may include debt repayment.
Aircastle's ratings are based on the company's strong liquidity position, which has enhanced its resilience to the negative effects on operating performance of the severe downturn in the global aviation sector. The ratings also recognize the stabilizing on Aircastle's financial condition of the company's ownership by Marubeni Corporation (Baa2 stable) and Muzuho Leasing, which acquired Aircatle's publicly-held shares in the first calendar quarter of 2020, eliminating Aircastle's exposure to equity market confidence sensitivity and expanding the company's access to funding alternatives.
Aircastle maintains a competitive position in mid-life commercial aircraft investing, but its fleet composition includes older aircraft that we believe are more vulnerable to lower utilization and greater value deterioration in the current protracted disruption in air travel, presenting greater risks to the company's earnings, cash flow and capital position compared to certain peers. Once recovery in air travel strengthens, airlines focused on capital efficiency will likely see value in leasing lower-cost mid-life narrow-body aircraft, particularly if fuel costs remain low, which should benefit demand for Aircastle's fleet and strengthen its earnings and cash flow prospects.
Aircastle's negative outlook reflects Moody's expectations of a more extended and weaker recovery in air travel that results in higher risks to earnings, cash flow, liquidity and capital positions.
FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATING
A ratings upgrade is unlikely over the next 12-18 months given the negative outlook, but Aircastle's ratings could be upgraded if: 1) the company maintains stronger liquidity than the average of investment-grade peers, 2) earnings and cash flow demonstrate unexpected resilience during the downturn and recover to levels stronger than peers; 3) fleet residual value risks materially decline, and 4) the company's management of capital remains strong, resulting in a debt-to-equity leverage ratio materially lower than peer average.
Aircastle's ratings could be downgraded if: 1) liquidity in relation to expenditures and debt maturities (one-year horizon) declines to less than 150%, 2) revenues weaken and costs increase to the extent that the company will be unable to generate materially positive profits and operating cash in 2023; 3) debt-to-equity leverage increases more than Moody's expects due to high impairment charges; 4) the company's competitive positioning otherwise weakens.
The principal methodology used in this rating 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.
For 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 rating has been disclosed to the rated entity or its designated agent (s) and issued with no amendment resulting from that disclosure.
This rating is 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.
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 Senior Vice President Financial Institutions Group Moody's Investors Service, Inc. 250 Greenwich Street New York, NY 10007 U.S.A. JOURNALISTS: 1 212 553 0376 Client Service: 1 212 553 1653 Ana Arsov MD - Financial Institutions Financial Institutions Group JOURNALISTS: 1 212 553 0376 Client Service: 1 212 553 1653 Releasing Office: Moody's Investors Service, Inc. 250 Greenwich Street New York, NY 10007 U.S.A. JOURNALISTS: 1 212 553 0376 Client Service: 1 212 553 1653
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