OREANDA-NEWS. Fitch Ratings has revised the Outlook on Aeolos S.A.'s EUR137m floating-rate notes to Negative from Stable, while affirming the rating at 'B'.

The notes are backed by receivables due from route charges levied on airlines for the use of the Greek airspace.

KEY RATING DRIVERS

Credit Linked to Greek Sovereign
The revision of the Outlook to Negative reflects a similar action taken on the Greek sovereign's Long-term Issuer Default Rating (IDR) (see Fitch Revises Outlook on Greece to Negative; Affirms at 'B' dated 16 January 2015 on www.fitchratings.com).

Political uncertainty in Greece has increased the risks to sovereign creditworthiness as official financing, and any potential reopening of market access, could be delayed for months. Early elections to be held on 25 January have made the direction of Greek policymaking more uncertain. Prolonged political deadlock until the summer is not Fitch's expectation, but would increase the risk of financing difficulties and a return to recession, which would in turn adversely affect the receivables from airline levies.

Strong Cashflow
Although seasonal, the performance of the receivable flows has been strong and stable over the years and comfortably covered payments according to the scheduled amortisation. The terms of the notes include a provision for noteholders to call an event of default if the sovereign defaults. This option was not exercised when the Greek sovereign defaulted in 2012. Fitch believes the generated cashflows would be strong enough to ultimately repay all principal and interest; however, all cash flows through Greek bank accounts and the call guarantee will keep the rating closely linked to the sovereign's.

The transaction pays interest semi-annually (March/ September), but amortises principal only at the March date. At the interest payment date in September 2013 and September 2014 collections were not sufficient to fully top up the principal reserve account due for amortisation in March 2013 and March 2014. This was the second time such a shortfall had occurred and although the shortfall was subsequently cleared using collections at the March 2014 interest payment date, this would be expected to continue and grow as amortisation increases.

RATING SENSITIVITIES

As the rating is supported at the floor by the Greek sovereign IDR, movements of the Greek sovereign IDR may cause the agency to take further action.