Fitch Affirms AerCap Holdings N.V. at 'BB '; Revises Outlook to Positive
These actions are being taken in conjunction with a broader industry review conducted today by Fitch, which includes five aircraft leasing companies. For more commentary on the broader sector review, please see 'Fitch Completes Aircraft Lessor Peer Review', available at 'www.fitchratings.com'.
KEY RATING DRIVERS
IDRS
The affirmation of AerCap's Long-term IDR of 'BB+' is supported by the company's scale, franchise, global platform and mixed fleet strategy following the acquisition of International Lease Finance Corp. (ILFC) in May 2014, a robust funding and liquidity profile including increased unsecured funding, and a strong management team. Rating constraints include the average age of the fleet (7.6 years at 1Q'15), elevated leverage on a Fitch-adjusted debt-to-tangible equity basis (pro forma 4.6x at 1Q'15), modestly weaker unencumbered asset coverage of unsecured debt relative to investment grade peers, the monoline nature of the business and the reliance on wholesale funding sources.
The Positive Outlook reflects deleveraging and fleet optimization undertaken by AerCap, combined with Fitch's expectation of further deleveraging over the outlook horizon. Fitch also believes execution/integration risk associated with the ILFC acquisition has significantly abated given that the company has successfully combined the ILFC fleet into the portfolio and largely completed the staff integration.
Share Repurchase Slows De-Leveraging
AER has continued to reduce balance sheet leverage via retained earnings, but Fitch believes that this metric remains consistent with the 'BB+' rating at this time, particularly following AerCap's \\$750 million share repurchase in June 2015. AER funded the share repurchase in part with \\$500 million of long-term subordinated debt from American International Group, Inc. (AIG) in connection with a June secondary public offering of AER shares by AIG. Fitch previously stated that positive rating momentum could slow if AerCap reinstituted share repurchase activity before deleveraging plans were completed. Fitch anticipates that balance sheet leverage will continue to decline organically over the next 12-to-24 months.
AerCap's balance sheet leverage increased materially following the ILFC transaction, primarily as a result of the assumption of ILFC's existing debt and acquisition-related purchase accounting. Leverage declined during the integration and as a result of the build-up of retained earnings. The company plans to maintain a conservative capital policy with a targeted debt-to-equity ratio (as calculated by the company) of approximately 2.7x to 3.0x, but at times has deviated from this target through opportunistic M&A activity and share repurchases. The reported debt to equity ratio on this basis was 3.2x as of March 31, 2015. Good visibility into future earnings and operating cash flows underpins the company's de-leveraging plan.
Fitch believes that the best measure of financial leverage for the company is adjusted debt-to-tangible equity. This measure adjusts debt by ascribing 50% equity credit to the company's subordinated notes per Fitch's hybrids criteria and reducing the fair market value for ILFC debt, which was a result of purchase accounting. This measure also adjusts equity by reducing the fair value of the company's order book, which was also a result of purchase accounting, as well as intangible assets, and non-controlling interests. These adjustments are more reflective of the economic value of the balance sheet than the reported debt-to-equity ratio in Fitch's opinion.
Fitch calculates that the adjusted debt-to-tangible equity ratio was 4.6x as of March 31, 2015 pro forma for the share repurchase and June senior unsecured notes offering, down slightly from 4.7x as of June 30, 2014 but up from 4.2x as of March 31, 2015. However, there is additional potential value imbedded in AER's order book, which is not reflected in this ratio. This potential value is a result of AER's agreements to purchase next generation aircraft below current appraised values and placements across a diversified lessee base under long term leases. Fitch projects that adjusted debt-to-tangible equity ratio could decline to around 3.0x over the next several years, which would be consistent with a 'BBB' category rating on a quantitative basis.
ILFC Integration Significantly Completed
AerCap consummated the ILFC transaction over a year ago for a consideration consisting of \\$2.4 billion in cash and approximately 97.6 million of AER ordinary shares, for a total value of approximately \\$7 billion (excluding a special distribution paid by ILFC to AIG). The company has completed the transfer of operations and key members of legacy ILFC staff from the U.S. to Ireland and reaped significant tax benefits by re-domiciling the vast majority of ILFC's assets to Ireland and transferring ILFC's large deferred tax liability to AIG. It has integrated the legacy ILFC and AerCap platforms related to processes and systems. AER continues to phase out employees with short-term contracts, most of which will terminate in 2015 and incurred severance and compensation expenses related to the ILFC transaction of \\$4.4 million in 1Q'15. Fitch expects that the last of such charges will be incurred during 3Q15.
Large Platform with Strong Utilization, Mixed Fleet Strategy
AerCap has a scalable operating platform and its utilization rates remained excellent at 99.4% in 1Q'15, up from 99.2% in 2014. The strong utilization rates are indicative, in part, of strong demand for the company's assets, but also broader industry trends in terms of growing air travel, increased used of aircraft leasing and improving airline financial condition. As of March 31, 2015, the company owned 1,133 aircraft across the age, size and manufacturer spectrums. In addition, AER continues to have of one of the largest order books in the industry, including some of the most in-demand aircraft in the market, placed at attractive prices and delivery slots. The 368 next generation aircraft on order were comprised of Boeing 737-800, 737-8Max, 787-8 and 787-9, Airbus A320-NEO, 321-NEO and 350-900, and Embraer 190 and 195.
During 2Q'15, AER purchased four wide-bodies including three Boeing 787s and one Airbus A350, and seven narrow-bodies Boeing 737-800s. AerCap signed an agreement with Boeing for an order of 100 Boeing 737 MAX 8 aircraft with deliveries starting in 2019. Additionally, signed purchase and leaseback agreements for four Boeing 737 MAX 8 aircraft. Also in 2Q'15, AER sold and parted out 14 planes including two Boeing 787-8s, six 757-200s, one 767-300ER, one Airbus A320, two Airbus A319s and two A321s. The overall bias in AerCap's fleet management strategy has been towards expanding what Fitch considers tier-1 aircraft, indicative of improving asset quality.
Nevertheless, the long-term nature of the orders could create a future liability that may need to be funded at a time when capital is not available on favorable terms. Furthermore, given the cyclical nature of the aviation market and continual technological advances, the contracted purchase price of the aircraft could potentially exceed the market value on the delivery date.
Favorable Asset Yields
Reported annualized net spreads increased year-over-year to 9.7% in 1Q'15 from 8.7% in 1Q'14 but were slightly down from 10.1% in 3Q'14 (the first full quarter after the closing of the ILFC transaction). Net spreads are defined by Fitch as net interest margin (basic lease rents less interest expense, excluding the non-cash charges relating to the mark-to-market of interest rate caps and swaps) divided by flight equipment held for operating lease, net investment in finance and sales-type leases and maintenance rights intangible assets. Fitch defined yield on assets have trended around 14% over the past several quarters. Strong underlying fundamentals in the aircraft leasing industry including rising passenger growth and the reduction in AER's customers' fuel costs should continue to support strong asset yields, at least in the near term.
Robust Liquidity and Strong Access to Capital
AER's liquidity position remains strong with sources (unsecured revolver, other undrawn commitments, AIG revolving credit facility, and unrestricted cash pro forma the share repurchase) covering uses by 1.5x through March 31, 2016. Total sources of liquidity totalled approximately \\$10 billion on a pro forma basis as of March 31, 2015. Fitch views this as an appropriate liquidity framework given AerCap's significant purchase commitments and debt maturities.
Since the ILFC transaction, AER's unsecured debt levels have continued to outpace secured debt levels, further expanding financial flexibility. Secured debt to total assets was 30% as of March 31, 2015 pro forma for the share repurchase program and June unsecured bond offering; the company has articulated a target of secured debt to total assets not greater than 30%.
AER has strong access to multiple sources of capital. Through subsidiaries, the company issued \\$4.4 billion of unsecured notes between Jan. 1, 2014 and July 30, 2015 at a weighted average spread of 238 basis points and AER also has proven access to the secured debt markets including bank debt.
KEY RATING DRIVERS
SENIOR UNSECURED DEBT
The equalization of the unsecured debt with AerCap and ILFC's IDRs reflects material unsecured debt as a portion of total debt, as well as the availability of unencumbered assets. The company's unencumbered aircraft provide support to unsecured creditors, although unencumbered asset coverage of unsecured debt is viewed as slightly weaker relative to investment grade peers.
KEY RATING DRIVERS
SENIOR SECURED DEBT
AerCap's senior secured bank debt and ILFC's senior secured notes ratings of 'BBB-' are one-notch above the long-term IDR, and reflect the aircraft collateral backing these obligations which suggest very strong recovery prospects.
The ratings of the senior secured term loans of Flying Fortress, Inc., Delos Finance SARL, and Temescal Aircraft Inc., which are wholly owned subsidiaries of ILFC, are equalized with the IDR of ILFC. These secured term loans are secured via a pledge of stock of the subsidiaries and related affiliates and are guaranteed by ILFC on a senior unsecured basis. The ratings on these secured term loans are not notched above ILFC's IDR due to the lack of a perfected first priority claim on aircraft provided to support repayment of the term loans. Furthermore, there is a risk of substantive consolidation of Flying Fortress, Inc., Delos Finance SARL and related affiliates in the event of an ILFC bankruptcy.
KEY RATING DRIVERS
HYBRID DEBT
The ILFC preferred stock ratings of 'B+' incorporate a three-notch differential between the long-term IDR and preferred stock rating reflecting the going-concern loss absorption nature of the instruments. This is consistent with Fitch's 'Treatment and Notching of Hybrids in Non-Financial Corporate and REIT Credit Analysis' criteria published on Nov. 25, 2014.
RATING SENSITIVITIES
IDRS, SENIOR UNSECURED DEBT, SENIOR SECURED DEBT AND HYBRID DEBT
Positive rating actions could result from a further and sustained reduction in balance sheet leverage below current levels, a continued improvement of the fleet profile in line with the company's long-term targeted average fleet age of six years, improved unencumbered asset coverage of unsecured debt, and maintenance of robust liquidity particularly with respect to near-term funding obligations.
With respect to leverage, Fitch expects to continue to focus primarily on the adjusted metric outlined herein, but in the context of the evolving profile of the fleet, the ongoing placement of, demand for, and valuation of AerCap's order book and the degree of visibility into AerCap's deleveraging capability over the outlook horizon. Depending on how these variables evolve, it is possible that ratings could be upgraded before leverage decreases below 3.0x on a Fitch-adjusted debt-to-tangible equity basis.
Negative rating actions could result from capital actions such as share repurchases (aside from potential additional share repurchases related to AIG's remaining approximately 5% interest in AerCap's ordinary shares), which would delay the company's reduction in leverage towards the 2.7x-3.0x target as defined by the company. Negative rating pressure could also arise from a sustained deterioration in financial performance and/or operating cash flows, higher than expected repossession activity, difficulty re-leasing aircraft at economical rates, a reduction in available liquidity, and/or inability to maintain or improve the fleet profile.
The ratings of the senior secured debt, senior unsecured debt and hybrid debt are sensitive to changes in AerCap's IDR and the relative recovery prospects of the instruments.
Fitch has affirmed the following ratings:
AerCap Holdings N.V.
--Long-term IDR at 'BB+'; Outlook revised to Positive from Stable.
AerCap Ireland Capital Limited
AerCap Global Aviation Trust
AerCap Aviation Solutions B.V.
--Senior unsecured notes at 'BB+'.
International Lease Finance Corp.
--Long-term IDR at 'BB+'; Outlook revised to Positive from Stable;
--\\$3.9 billion senior secured notes at 'BBB-';
--Senior unsecured notes at 'BB+';
--Preferred stock at 'B+'.
Flying Fortress Inc.
--Senior secured term loan at 'BB+'.
Delos Finance SARL
--Senior secured term loan at 'BB+'.
ILFC E-Capital Trust I
--Preferred stock at 'B+'.
ILFC E-Capital Trust II
--Preferred stock at 'B+'
AerCap B.V.
AerCap Dutch Aircraft Leasing I B.V.
AerCap Dutch Aircraft leasing IV B.V.
AerCap Dutch Aircraft Leasing VII B.V.
AerCap Engine Leasing Limited
AerCap Ireland Limited
AerCap Partners 767 Limited
AerCap Partners I Limited
AerFunding 1 Limited
AerLift Leasing Jet Limited
AerVenture Leasing 1 Limited
Bluesky Aircraft Leasing Limited
CelestialFunding Limited
Cielo Funding Limited
Cielo Funding II Limited
Flotlease MSN 973 Limited
Genesis Portfolio Funding 1 Limited
Harmonic Aircraft Leasing Limited
Harmony Funding BV
Limelight Funding Limited
Melodic Aircraft Leasing Limited
Monophonic Aircraft Leasing Limited
Parilease / Jasmine Aircraft Leasing Limited
Philharmonic Aircraft Leasing Limited
Polyphonic Aircraft Leasing Limited
Quadrant MSN 5869 Limited
Renaissance Aircraft Leasing Limited
Rouge Aircraft Leasing Limited
Sapa Aircraft Leasing 2 BV
Sapa Aircraft Leasing BV
Skyfunding II Limited
SkyFunding Limited
SoraFunding Limited
Sunflower Leasing Co., Ltd
Symphonic Aircraft Leasing Limited
Triple Eight Aircraft Leasing Limited
Tulip Leasing Co., Ltd.
Wahaflot Leasing 3699 (Bermuda) Limited
Westpark 1 Aircraft Leasing Limited
Worldwide Aircraft Leasing Limited
--Senior secured bank debt at 'BBB-'.
In addition, Fitch has assigned the following ratings:
Temescal Aircraft Inc.
--Senior secured term loan 'BB+'.
Excalibur One 77B LLC
NimbusFunding BV
StratusFunding Limited
StratocumulusFunding BV
--Senior secured bank debt 'BBB-'.
Fitch has withdrawn the 'BBB-' rating on GLS Atlantic Alpha Limited's senior secured bank debt as this obligation has been repaid and the rating is no longer relevant to the agency's coverage.
Комментарии