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Doric Nimrod Air Finance Alpha Limited -- Moody's downgrades Doric's EETCs financing A380s, Class As to Ba3, outlook negative

Rating Action: Moody's downgrades Doric's EETCs financing A380s, Class As to Ba3, outlook negative

Global Credit Research - 18 Aug 2020

New York, August 18, 2020 -- Moody's Investors Service ("Moody's") downgraded its ratings assigned to the two Enhanced Equipment Trust Certificate financings backed by operating leases to Emirates Airline ("Emirates"): Doric Nimrod Air Finance Alpha Limited, Series 2012-1 ("2012-1"): Class A to Ba3 from Ba1 and DNA Alpha Limited, Series 2013-1 ("2013-1"): Class A to Ba3 from Ba1. The rating outlook on each transaction is negative. Today's actions resolve the review for downgrade initiated on March 27, 2020.

The coronavirus pandemic, the weakened global economy, lower oil prices, and asset price declines are sustaining a severe and extensive credit shock across many sectors, regions and markets. The combined credit effects of these developments are unprecedented. The steep and sustained decline in air passenger travel leaves the Airbus A380 aircraft, the highest capacity commercial aircraft in operation, vulnerable in the current unprecedented operating conditions and through and after the recovery in passenger demand, when that occurs after the coronavirus becomes manageable. Moody's regards the coronavirus outbreak as a social risk under its ESG framework, given the substantial implications for public health and safety.

The ratings downgrades reflect the adverse impacts of the coronavirus on the demand for and secondary market values of the Airbus A380 aircraft and Emirates' financial performance. The negative outlook reflects the uncertainty of the coronavirus' lasting impact on global demand for air travel and Emirates Airlines' operations and financial position.

The sustained decline in demand for passenger air travel and the expected lagging recovery of long-haul passenger demand once the coronavirus becomes manageable following the availability of effective pharmaceutical remedies, including vaccines and medicines, has led to most of the relatively few operators of the A380 to reduce, if not retire, this model from their fleets. Note that other than Emirates' re-start of limited A380 operations this past July, the global fleet of A380s remains mostly parked. While the secondary market for the A380 was very limited heading into 2020, the coronavirus dampens any hope for stability, let alone a recovery, for demand and thus values of A380s. Nonetheless, Moody's believes the A380 will remain relevant to Emirates' fleet strategy. There were 115 in the company's fleet at March 31, 2020. Emirates accounted for more than half of the A380s that were in service pre-coronavirus. Emirates will represent the overwhelming majority of the secondary market as it will need aircraft to assure it an ample supply of spare parts. The former operators that have announced the retirement of their A380s will become sellers in the secondary market. There will be very few other operators of the A380, and none with anywhere near the size of Emirates fleet.

RATINGS RATIONALE

The Ba3 ratings reflect the importance of the A380 to Emirates strategy, which informs Moody's belief that the pass-through trustees will make timely payments of interest and scheduled principal for each transaction. The final scheduled payments on Series 2012-1 and the Series 2013-1 are November 30, 2022 and May 30, 2023, respectively. The declining potential of the secondary market for the A380 increases market value risk and potentially, the sufficiency of collateral coverage under a certificate default scenario.

Moody's now estimates the equity cushion using its estimates of part-out value, which it assumes at about $50 million per aircraft, or about half of appraiser's valuations based on half-life market values before the onset of the coronavirus. The faster annual amortization of the certificates -- relative to the more typical mortgage-type EETCs -- has sufficiently reduced the debt balances to sustain an equity cushion, albeit modest at this stage. The decline in the global operating fleet of A380s will continue to pressure even part out values in upcoming years.

The ratings also consider i) the applicability of the Cape Town Convention as implemented by the United Arab Emirates, ii) the credit support provided by the 24 month liquidity facilities, iii) the cross-default of the equipment notes and the operating leases, and iv) the cross-collateralization of the equipment notes.

FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS

Moody's expects no upwards rating pressure given the multi-year impact of the coronavirus on air passenger demand. The ratings could be downgraded if Emirates was to de-emphasize the A380 in its fleet strategy or if Moody's believes the credit quality of Emirates' was to weaken. Changes in the EETC ratings can also result from changes in Moody's estimates of aircraft market values, which will affect estimates of loan-to-value.

Please see our reports: "Doric Nimrod Air Finance Alpha Limited Series 2012-1 Enhanced Equipment Trust Certificate: Airbus A380 Aircraft Financing for Emirates" and "DNA Alpha Limited Series 2013-1 Enhanced Equipment Trust Certificates: Airbus A380 Aircraft Financing for Emirates" available on moodys.com for details of each transaction.

The methodologies used in these ratings were Enhanced Equipment Trust and Equipment Trust Certificates published in July 2018 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1125852, and Passenger Airline Industry published in April 2018 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1091811. Alternatively, please see the Rating Methodologies page on www.moodys.com for a copy of these methodologies.

Doric Nimrod Air Finance Alpha Limited and DNA Alpha Limited are limited liability companies incorporated under the laws of Guernsey, whose registered offices are at Dorey Court, Admiral Park, St. Peter Port, Guernsey GY1 2HT, Channel Islands.

Emirates, is a Dubai Corporation incorporated by Decree No. 2 of 1985 (as amended) by the then Crown Prince and Deputy Ruler of Dubai, His Highness Sheikh Maktoum Bin Rashid al Maktoum, the address and principal place of business of which is at the Emirates Group Headquarters, P.O. Box 686, Dubai, United Arab Emirates. Emirates reported revenue of AED 104.002 billion (approximately $28.34 billion) for its fiscal year ended March 31, 2020, which compares to AED109.255 billion (approximately $29.4 billion) for its fiscal year ended March 31, 2019.

Downgrades:

..Issuer: DNA Alpha Limited

....Senior Secured Enhanced Equipment Trust, Downgraded to Ba3 from Ba1

..Issuer: Doric Nimrod Air Finance Alpha Limited

....Senior Secured Enhanced Equipment Trust, Downgraded to Ba3 from Ba1

Outlook Actions:

..Issuer: DNA Alpha Limited

....Outlook, Changed To Negative From Rating Under Review

..Issuer: Doric Nimrod Air Finance Alpha Limited

....Outlook, Changed To Negative From Rating Under Review

REGULATORY DISCLOSURES

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 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_1133569.

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.

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.

Jonathan Root, CFA Senior Vice President Corporate Finance 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 Russell Solomon Associate Managing Director Corporate Finance 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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