Rating Action: Moody's assigns B1 CFR to Brown Bidco Limited (Signature Aviation)Global Credit Research - 13 Apr 2021London, 13 April 2021 -- Moody's Investors Service ("Moody's") has today assigned a B1 corporate family rating (CFR) and B1-PD probability of default rating (PDR) to BROWN BIDCO LIMITED, a company formed for the purpose of the acquisition of flight services provider Signature Aviation plc (Signature or the company). Concurrently, Moody's has assigned B1 instrument ratings to the $1.8 billion seven year backed senior secured first lien term loan and the $350 million five year backed senior secured revolving credit facility, to be borrowed by Brown Group Holding LLC, a subsidiary of BROWN BIDCO LIMITED. The outlook on all the ratings is stable.Today's rating action reflects:** The resilient nature of the business with robust performance over the pandemic and a rapid recovery in US private aviation traffic volumes** The company's leading Fixed Base Operator (FBO) position with a substantial footprint at airports in the US and globally** The increase in Moody's-adjusted leverage as a result of the transaction of approximately 1.5x Moody's-adjusted 2019 EBITDAAt the same time Moody's has confirmed the existing Ba3 ratings of the $650 million backed senior unsecured notes due 2028 (the "2028 Notes") and $500 million backed senior unsecured notes due 2026 (the "2026 Notes", together with the 2028 Notes, the "Notes") issued by Signature Aviation US Holdings, Inc. This is based on Moody's assumption that the Notes will be repaid after the transaction completes, and their ratings will be withdrawn upon repayment. It is expected that the principal amount of the senior secured first lien term loan will be reduced on a dollar-for-dollar basis by the principal amount of the Notes that may remain outstanding on the acquisition closing date. To the extent the Notes remain outstanding, they are expected to rank pari passu with the senior secured first lien term loan. Moody's has also withdrawn the existing Ba3 CFR and the Ba3-PD PDR of Signature Aviation plc. This concludes the review for downgrade of Signature's ratings initiated on 22 January 2021.The new debt facilities will be utilized, alongside new cash and rollover equity contributions of around $4.2 billion, to finance the acquisition of Signature Aviation plc by entities controlled by Blackstone Infrastructure, Blackstone Core Equity, Global Infrastructure Partners and Cascade Investment, L.L.C., to refinance existing debt, to pay transaction expenses and for working capital purposes.Assignments:..Issuer: BROWN BIDCO LIMITED.... Corporate Family Rating, Assigned B1.... Probability of Default Rating, Assigned B1-PD..Issuer: Brown Group Holding LLC....Senior Secured Bank Credit Facility, Assigned B1Confirmations:..Issuer: Signature Aviation US Holdings, Inc.....Senior Unsecured Regular Bond/Debenture, Confirmed at Ba3Withdrawals:..Issuer: Signature Aviation plc.... Probability of Default Rating, Withdrawn , previously rated Ba3-PD.... Corporate Family Rating, Withdrawn , previously rated Ba3Outlook Actions:..Issuer: BROWN BIDCO LIMITED....Outlook, Assigned Stable..Issuer: Brown Group Holding LLC....Outlook, Assigned Stable..Issuer: Signature Aviation US Holdings, Inc.....Outlook, Changed To Stable From Rating Under Review..Issuer: Signature Aviation plc....Outlook, Changed To Rating Withdrawn From Rating Under ReviewRATINGS RATIONALEThe B1 CFR reflects the company's (1) strong position as the leading FBO provider in the US; (2) flexible cost structure, allowing the company to manage periods of decreased revenue; (3) substantial and profitable real estate portfolio providing hangarage for parked aircraft; (4) strong history of organic revenue growth in its core business from 2010-19; (5) resilient performance during the coronavirus pandemic with substantial market recovery continuing in 2021.The ratings also reflect: (1) high financial leverage following the transaction, which Moody's forecasts at around 7.3x in 2021 on an adjusted basis; (2) the uncertain path towards full recovery of demand and profitability as a result of the pandemic; (3) exposure to the high cyclicality of the business and general aviation markets.Signature maintains a strong business profile with a leadership position around 2x larger by revenues than Atlantic Aviation FBO, Inc. -- B2 negative. It benefits from long leases at airports, is the sole provider at around a third of its locations and operates in an industry where space is a constraining factor. Its performance over the course of the pandemic has been relatively robust, with a reasonably rapid recovery in flight movements in the core US business and general aviation markets. In the first two months of 2021 flight movements across the US market were around 10-13% below 2020 levels [citation]. Moody's expects demand to recover to pre-pandemic levels by 2022 or 2023, supported by the continued vaccination roll out program in the United States, a supportive domestic travel market, and a return of activities in the rest of the world and in international travel as broader travel markets recover.The market is also expected to be supported by increased demand from charter operators and fractional ownership customers, which provides a more efficient basis of private aviation than outright aircraft ownership. Moody's also considers that potential pressures on business travel from growth in virtual meetings will be less of a threat to Signature given its focus on C-suite business travelers and the US domestic market. In addition, Moody's expects the company's earnings recovery to be supported by cost savings particularly in relation to the removal of listing costs and the potential closure of its London head office.STRUCTURAL CONSIDERATIONSThe senior secured first lien term loan and revolving credit facility (RCF) are rated B1, in line with the CFR, reflecting the first lien only capital structure and pari passu ranking of the debt instruments. The facilities are guaranteed by material subsidiaries with substantial guarantor coverage, and security is provided over substantially all the assets of the borrowers and material subsidiaries. After completion of the transaction the facilities are expected to be at least partially pushed down to Signature Aviation US Holdings, Inc., an indirect subsidiary of Signature Aviation plc.LIQUIDITYLiquidity will remain good following the transaction, supported by a pro forma cash balance on closing of $25 million and access to the undrawn $350 million RCF. The RCF contains a springing leverage covenant set at 40% headroom which applies when the facility is at least 40% drawn. The company is expected to continue generating positive free cash flow after servicing debt under the new financial structure.ENVIRONMENTAL, SOCIAL & GOVERNANCE CONSIDERATIONSMoody's regards the coronavirus pandemic as a social risk under its ESG framework, given the substantial implications for public health and safety. Whilst the company was significantly affected by reductions in flight activity at the start of the pandemic in the second quarter of 2020, it has since seen a substantial recovery with US flight activity across Signature's network. The company's recovery was also supported by significant non-flight revenues including from hangarage, and by cost reductions, leading to continue positive free cash flow.The company could be at risk from carbon transition leading to increased usage of electric aircraft and a focus by corporate customers on reducing emissions. Moody's anticipates a gradual shift towards electric business jets over the next decade and in the event that electric aircraft use becomes widespread, Signature would likely be able to shift its revenue model to charging for flight movements rather than fuel sales to maintain net revenues.Companies may seek to reduce business travel as part of efforts to reduce their carbon footprint. Whilst this may have a degree of dampening effect on growth, the critical nature of executive travel, the focus on the US domestic market, and need to access remote locations difficult to reach by commercial aviation, will provide a relatively high degree of protection.Following the transaction Signature will be controlled by a consortium of private investors with a focus on infrastructure investments and Moody's expects the shareholders to maintain a relatively balanced financial policy with a focus on deleveraging and a relatively long-term investment horizon. Moody's does not expect substantial releveraging transactions or dividend payments to occur.OUTLOOKThe stable outlook reflects Moody's expectations that business and general aviation flight movements will continue to increase gradually leading the company to steadily improve EBITDA, returning to around pre-pandemic levels by around 2022 or 2023. It also assumes that there are no significant debt-financed acquisitions that would result in a material increase in leverage, and no material dividend distributions.FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGSThe ratings could be upgraded if Moody's expects:- Moody's-adjusted leverage to reduce sustainably to around 5.5x- Moody's-adjusted EBITA / interest to increase sustainably above 2x- Free cash flow / debt to increase to at least mid-single digit percentagesAn upgrade would also require positive organic revenue growth at or above the market, and for the company to maintain financial policies consistent with the above metrics.Moody's could downgrade Signature if:- Moody's-adjusted leverage is expected to be sustainably above 6.5x- Moody's-adjusted EBITA / interest reduces consistently towards 1.5x- Free cash flow / debt reduces to low single digit percentagesThe ratings could also be downgraded if there is a material weakness in the market which is likely to delay or prevent recovery, if there is a material weakening in the company's liquidity position, or if organic revenue growth is sustained materially below market rates.PRINCIPAL METHODOLOGYThe principal methodology used in these ratings was Business and Consumer Service Industry published in October 2016 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1037985. Alternatively, please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.COMPANY PROFILESignature has 179 fixed base operator (FBO) locations (excluding 162 EPIC locations and 13 Signature Select locations) providing business and general aviation flight support services at airports, with the US being the largest market followed by Europe. An FBO is a commercial business granted the right by an airport to operate on the airport and provide aeronautical services.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.REFERENCES/CITATIONSUS Federal Aviation Administration Business Jet Report March 2021 IssuePlease 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. Martin Robert Hallmark Senior Vice President Corporate Finance Group Moody's Investors Service Ltd. One Canada Square Canary Wharf London E14 5FA United Kingdom JOURNALISTS: 44 20 7772 5456 Client Service: 44 20 7772 5454 Richard Etheridge Associate Managing Director Corporate Finance Group JOURNALISTS: 44 20 7772 5456 Client Service: 44 20 7772 5454 Releasing Office: Moody's Investors Service Ltd. 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