Rating Action: Moody's rates JetBlue's 2020-1 EETC: Class A at A2, Class B at Baa2
Global Credit Research - 03 Aug 2020
New York, August 03, 2020 -- Moody's Investors Service ("Moody's") has assigned ratings to JetBlue Airways Corp.'s ("JetBlue") Pass Through Certificates, Series 2020-1 that the company announced earlier today: $635.462 million Class A with a legal final maturity of May 15, 2034 at A2 and $172.330 million Class B with a legal final maturity of May 15, 2030 at Baa2 (together, "the Certificates"). JetBlue's Ba2 corporate family rating ("CFR") and negative outlook on all of Moody's ratings of JetBlue including the 2020-1 Enhanced Equipment Trust Certificates are unaffected by today's rating assignments.
The final scheduled distribution dates precede the respective legal final maturity dates by 18 months. The obligations will be secured by 17 Airbus A321-200ceo (current engine option) narrow-body aircraft delivered new to JetBlue between January 2015 and January 2017 and seven Airbus A321neos delivered new to JetBlue between June 2019 and February 2020. The proceeds of Series 2020-1 will fund a portion of the repayment of the company's $1 billion 364-day delayed draw term loan due March 2021. The aircraft in this transaction plus other collateral including aircraft engines presently secure the 364-day facility. JetBlue will have the right to substitute airframes (excluding engines) or aircraft pursuant to the transaction's terms, same as in its Series 2019-1 EETCs.
The ratings reflect the credit quality of JetBlue; the typical benefits of EETCs, including the applicability of Section 1110 of the US Bankruptcy Code, cross-default and cross-collateralization of the equipment notes; 18-month liquidity facilities provided by Natixis, acting via its New York Branch; and cross-subordination pursuant to the Intercreditor Agreement.
The ratings also reflect Moody's opinion that the A321s in the transaction will remain important to JetBlue's long-term network and fleet strategy, which increases the likelihood of the company affirming the transaction under a reorganization scenario. JetBlue's current fleet includes 63 A321ceos and nine A321neos. Its Series 2019-1 EETC is collateralized by 25 A321ceos with an average age of about 2.6 years. About one-third of the A321 fleet secures each of the company's now two publicly-rated EETCs. For 2020-1, the average age of the ceos is 4.4 years, the neos less than one year. The company's orderbook includes 76 A321neos and 70 Airbus A220s. Deliveries of the A321s are currently scheduled through 2024; however, Moody's believes the schedule is likely to be delayed because of the impacts of the coronavirus. Additionally, many of the A321neos will likely replace the oldest of the company's smaller A320s. The average age of the A320 fleet is over 14 years. The 23 A321XLRs on order will facilitate JetBlue's planned introduction of service to Europe from the US East Coast. The long-range versions may also be deployed on longer routes into South America. The young age of the aircraft and the significant number that collateralize each EETC further support Moody's belief that JetBlue would affirm the obligations in a reorganization scenario. Additionally, the high-density seating version of the A321s, 16 of 24 in this transaction and the neos with their geared-turbofan engines, will help the company lower its carbon footprint. The higher seating density will lower emissions per passenger and per available seat mile. The neo engine should improve fuel efficiency by 20% compared to the predecessor ceo models.
Moody's estimates of the peak loan-to values (before priority claims for repossession and remarketing costs and of liquidity providers) (LTV) for the Class A and Class B of about 64% and 80%, respectively, also support the rating of each class. The projected LTVs are downward sloping, with Moody's projected LTV starting at 64%, trending to about 58% in 2025, about 48% in 2030 and about 40% at the scheduled maturity in November 2032 for the Class A. The Class B trends from its initial LTV of about 80% to about 69% in 2025 and to about 60% at its scheduled final payment in November 2028. The projected Class A LTV in the prospectus runs from about 59% at inception to about 48% in 2025 and about 24% at the scheduled maturity. The Class B trends from its initial LTV of about 75% to about 57% in 2025 and about 45% at the scheduled maturity date. Moody's used a 5% annual rate of decline for the ceos and 4% for the neos and a 1% inflation rate when projecting the current market value of the aircraft. This compares to the 3% rate and appraisers' maintenance-adjusted base values used in the prospectus and accounts for the differences in projected LTVs. Moody's estimates the aggregate market value of the 24 aircraft at about $1.028 billion at the transaction's issuance date, about $738 million in November 2025 and about $394 million at scheduled maturity in November 2032. These values compare to about $1.077 billion, $890 million and $630 million, respectively, disclosed in the offering memorandum.
FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS
Changes in the EETC ratings can result from any combination of changes in the underlying credit quality or ratings of JetBlue, Moody's opinion of the importance of aircraft models to the airline's network, or Moody's estimates of aircraft market values, which will affect estimates of loan-to-value.
The methodologies used in these ratings were Passenger Airline Industry published in April 2018 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1091811, and Enhanced Equipment Trust and Equipment Trust Certificates published in July 2018 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1125852. Alternatively, please see the Rating Methodologies page on www.moodys.com for a copy of these methodologies.
The following ratings were assigned:
..Issuer: JetBlue Airways Corp.
....Senior Secured Enhanced Equipment Trust Series 2020-1 Class A, Assigned A2
....Senior Secured Enhanced Equipment Trust Series 2020-1 Class B, Assigned Baa2
JetBlue Airways Corp., based in Long Island City, New York, operates a low-cost, point-to-point airline from its primary focus cities -- New York from John F. Kennedy International airport, Boston, Fort Lauderdale and Los Angeles. JetBlue serves more than 100 cities with an average of more than 1,000 daily flights. Revenue was $8.1 billion in 2019 and $5.9 billion in the last 12 months ended June 30, 2020.
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.
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Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.
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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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