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Global Credit Research - 07 May 2013
$1.6 billion term loan rated
New York, May 07, 2013 -- Moody's Investors Service assigned a B2 rating to the new $1.6
billion term loan facility that US Airways, Inc. ("US
Airways") will arrange. There will be a $1.0
billion tranche due in May 2019 and a $600 million tranche due
in November 2016. Each tranche will amortize 1% per annum.
US Airways obligations under the credit agreement will be guaranteed by
its parent, US Airways Group, Inc. and certain of its
subsidiaries. The Corporate Family Rating (CFR) of US Airways Group,
Inc. is B3. The rating outlook is stable.
The proceeds of the new facility will fund the repayment prior to maturity
of the about $1.1 billion outstanding on the company's
existing senior secured term loan facility due March 29, 2014 (rated
B2) and of other financings secured by spare parts, slots,
aircraft or spare engines. About $250 million of cash will
go to the balance sheet as well. Moody's will withdraw the
rating on the existing term loan following its repayment in full.
RATINGS RATIONALE
The B3 CFR reflects Moody's belief that the company can sustain credit
metrics at levels supportive of the B3 rating category over the intermediate
term. US Airways' existing network, anchored by hubs in Charlotte,
Philadelphia, Phoenix and Washington, D.C.,
is mainly a U.S. domestic network that is smaller than those
of its larger legacy airline peers. However, Moody's expects
US Airways to manage its capacity with a focus on earning acceptable returns
on capital, which should help it produce competitive airline operating
and financial metrics. We expect these metrics will be maintained
despite the current up-gauging of the fleet with Airbus A321s replacing
smaller aircraft. This up-gauging is being undertaken during
a period in which lackluster economic growth could pressure industry demand,
yields and operating profits. Moody's also believes that
effects of the sequestor on U.S. government and corporate
spending and the rollback of the payroll tax holiday in 2013 could incrementally
pressure demand in upcoming quarters. However, the recent
pull-back in the cost of fuel, if sustained, should
help to mitigate any such pressure.
The stable outlook anticipates that US Airways will generate about breakeven
to modestly positive free cash flow generation in the 24 month period
through the end of 2014 notwithstanding higher capital expenditures for
new aircraft. This is balanced against potential near term pressures
on earnings and cash flows following the execution of the merger transaction
because of integration expenses and increased compensation expense.
The stable outlook also reflects our expectation that the company will
maintain capacity discipline and use revenue management to help mitigate
downwards pressure on earnings when the cost of fuel meaningfully increases.
A positive rating action could follow if the company were to further strengthen
its metrics profile or smoothly integrate its and American's operations
and work groups, allowing it to focus on achieving the forecasted
revenue synergies that are important to the financial success of the merger.
Sustaining Debt to EBITDA below 5.5 times, Funds from operations
+ interest to interest above 3.0 times and positive free cash
flow generation with the expected higher investment levels could support
an upgrade. A merger of legal entities that results in the combined
enterprise becoming the legal obligor of all of US Airways' debt
could also positively pressure the ratings. A negative rating action
could follow if the company's unrestricted cash fell below $1.8
billion before the completion of the merger. The inability to control
non-fuel operating costs or to sustain competitive yields,
either of which would challenge the company to maintain its operations
over the long-term could also lead to a downgrade. Debt
to EBITDA that surpasses 7.0 times, FFO + Interest to
Interest that approaches 2.0 times or sustained negative free cash
flow generation could pressure the ratings.
The principal methodology used in this rating was the Global Passenger
Airlines Industry Methodology published in May 2012. Other methodologies
used include Loss Given Default for Speculative-Grade Non-Financial
Companies in the U.S., Canada and EMEA published in
June 2009. Please see the Credit Policy page on www.moodys.com
for a copy of these methodologies.
US Airways, along with US Airways Shuttle and US Airways Express,
operates nearly 3,200 flights per day and serves more than 200 communities
in the U.S., Canada, Mexico, Europe,
the Middle East, the Caribbean, Central and South America.
REGULATORY DISCLOSURES
For ratings issued on a program, series or category/class of debt,
this announcement provides certain regulatory disclosures in relation
to each rating of a subsequently issued bond or note of the same series
or category/class of debt 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 rating action on the support provider and in relation to each particular
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 rating action, and
whose ratings may change as a result of this 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.
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
VP - Senior Credit Officer
Corporate Finance Group
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653
Michael J. Mulvaney
MD - Corporate Finance
Corporate Finance Group
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653
Releasing Office:
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653
Moody's assigns B2 rating to US Airways' new senior secured term loan
No Related Data.
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