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Rating Action:

Moody's affirms easyJet's Baa3 ratings following launch of rights issue; outlook changed to stable

14 Sep 2021

London, 14 September 2021 -- Moody's Investors Service ("Moody's") has today affirmed all the ratings of easyJet Plc (easyJet or the company), comprising easyJet's Baa3 long-term issuer rating, the Baa3 ratings of the backed senior unsecured notes issued by easyJet Plc and its wholly-owned subsidiary easyJet FinCo B.V., and the provisional (P)Baa3 ratings of the backed senior unsecured medium-term note (EMTN) programme under easyJet Plc and easyJet FinCo B.V. The outlook on all the ratings has been changed to stable from negative.

Today's rating action reflects:

- The launch of a fully underwritten equity rights issue with estimated net proceeds of approximately GBP1.2 billion, alongside a new $400 million revolving credit facility

- The material improvement in liquidity, reduction in net debt and expected stronger recovery in balance sheet metrics as a result of the transaction

- The relatively slow recovery in easyJet's passenger volumes with continued elevated risks of restrictions on international travel stalling or reversing the recovery

A full list of affected ratings can be found at the end of this press release.

RATINGS RATIONALE

On 9 September 2021 easyJet launched a fully underwritten rights issue which is estimated to raise net proceeds of approximately GBP1,196 million. In addition, it has obtained a new $400 million revolving credit facility conditional on completion of the rights issue, drawings under which will be secured over a portion of the company's aircraft fleet. The new financings will materially improve the company's liquidity and its ability to withstand further severe compressions in passenger demand for an extended period through to its bond maturities in the last quarter of calendar year 2023.

Moody's expects the proceeds from the rights issue to be retained as cash on balance sheet, however the company will seek to use surplus cash to repay debt and reduce its gross leverage at an appropriate point when a substantial reduction in risks related to the pandemic allow.

easyJet has experienced a strong improvement in passenger volumes since June 2021. Moody's estimates that the company's revenue passenger kilometres (RPKs) will be approximately 40-45% of 2019 levels through the quarter to September 2021, compared to only 12% in the previous quarter. Moody's expects the company to generate low positive cash flow in the current quarter, and at existing levels of activity cash burn over the coming low season will be substantially reduced compared to the prior year. At the same time easyJet's passenger volumes have been constrained by its exposure to routes between the UK and continental Europe, which represented around 27% of its planned schedule for the quarter to September 2021. These routes have been impacted by greater travel restrictions and lower consumer confidence relative to intra-EU and domestic flights.

Accordingly easyJet's recovery in passenger volumes lags those of other European short haul low cost operators, including Ryanair (August passenger numbers 75% of 2019 levels [1]) and Wizz Air Holdings plc (Baa3 negative -- 89% of 2019 levels [2]), and also below rated airlines in the US where August passenger numbers, according to daily screenings data, were 77% of 2019 levels [3].The slower relative recovery of easyJet's passenger numbers, and constraints represented by the UK's international border with the EU, continue to weigh on the ratings.

The pace of COVID-19 vaccinations in Europe, leading to easing of travel restrictions, has driven improvement in intra-European travel volumes. However, the recovery in airline passenger traffic may slow or reverse if vaccine-resistant COVID variants emerge, or if infection rates and hospitalisation rates are sustained at very high levels.

easyJet remains relatively strongly placed to benefit from a recovery in air travel given its scale, broad network, low-cost positioning, strong positions at primary airports, cost advantages over legacy carrier competitors and focus on short haul leisure travel. Moody's forecasts that easyJet's leverage will reduce to around 2.5-3.0x on a Moody's adjusted-basis by 2023 on a material recovery in air traffic.

LIQUIDITY

Moody's expects the proceeds of the rights issue to be retained as cash on balance sheet until the liquidity and cash absorption risks of the pandemic have dissipated, leading to a strong liquidity position. Following completion of the transaction easyJet will have total cash and undrawn facilities of approximately GBP4.4 billion as at 30 June 2021, pro forma for the rights issue and new revolving credit facility financing. easyJet will repay the outstanding GBP300 million of its Covid Corporate Financing Facility in November 2021 and thereafter there are no material debt maturities beyond leasing repayments until 2023. The company reports weekly cash burn relating to fixed costs and capital expenditure, and before flying contribution and working capital movements, of GBP34 million. Moody's estimates that liquidity is sufficient to cover cash burn through to the fourth quarter of 2023, assuming a continuation of the low levels of flying contribution achieved in the quarter to June 2021.

The company maintains a substantial proportion of unencumbered aircraft, representing 41% of its fleet, and which provides scope for raising additional liquidity if required.

STRUCTURAL CONSIDERATIONS

easyJet's secured debt is currently approximately 45% of total debt. As a result, senior unsecured creditors are exposed to a degree of subordination risk. However, easyJet's senior unsecured ratings are not notched down because Moody's expects a gradual rebalancing of the debt structure over the next 1-2 years. In addition, the company's large remaining unencumbered aircraft could materially mitigate the subordination risk for senior unsecured creditors.

ENVIRONMENTAL, SOCIAL AND GOVERNANCE CONSIDERATIONS

easyJet has committed to net-zero carbon dioxide emissions on all flights across its network through the purchase of carbon offsets since November 2019.

The European Commission announced a comprehensive package of legislation called "Fit for 55" in July 2021 which aims to cut net carbon emissions by 55% by 2030 compared with 1990 levels. The proposals would likely lead to higher carbon costs under the EU Emissions Trading System, increase airline fuel costs through requirements to increase the uptake of sustainable fuels within the EU, and gradually introduce minimum tax rates on traditional fuels within the EU, which are currently exempt from taxation. European airlines costs are likely to be materially affected by the proposals as they are phased in over the course of this decade, and the extent to which airlines can pass these costs on to customers whilst preserving margins is uncertain.

Moody's regards the coronavirus pandemic as a social risk under its ESG framework, given the substantial implications for public health and safety.

On 19 May 2020 easyJet reported that it had been subject to a cyber-attack in which email addresses and travel details of around nine million customers were accessed. The company is under investigation by the UK's Information Commissioner's Office for any potential breaches of data protection regulations. In addition a class action claim has been filed in the UK High Court by affected customers of the data breach. The outcome of the investigation and potential claims is uncertain, however at this stage Moody's does not expect the incident to result in a substantial fine, because of the sophisticated nature of the attack, close liaison with regulatory bodies, and the limited access to customers' credit card details.

easyJet has a conservative financial policy targeted at maintaining strong liquidity, and strengthening its balance sheet, including reducing gross debt / EBITDA. The proposed rights issue represents a strong continuation of this policy and the company's commitment to restoring balance sheet metrics consistent with the investment-grade rating.

easyJet complied with the applicable 2018 UK Corporate Governance Code throughout fiscal 2020, ended 30 September 2020.

OUTLOOK

The stable outlook reflects easyJet's strong liquidity position, and the expectation that the company could withstand potential material adverse developments in relation to the pandemic for at least the next 12 months, whilst maintaining sufficient liquidity and a capability to restore balance metrics if the recovery from the pandemic is delayed beyond Moody's expectations.

FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS

The ratings are unlikely to be upgraded in the short term. Positive rating pressure would not arise until the coronavirus pandemic is brought under control, travel restrictions are lifted, and passenger volumes return to more normal levels. At this point Moody's would evaluate the balance sheet and liquidity strength of the company and positive rating pressure would require evidence that the company is capable of substantially recovering its financial metrics and restoring liquidity headroom within a 1-2 year time horizon.

Downward ratings pressure could arise if:

- Passenger volumes decline for an extended period leading to a further period of high cash burn and a material weakening of liquidity

- There are clear expectations that the company will not be able to maintain financial metrics compatible with a Baa3 rating following the coronavirus pandemic, in particular if:

- gross adjusted leverage is expected to be sustainably above 3.5x

- retained cash flow / debt reduces consistently below 20%

PRINCIPAL METHODOLOGY

The principal methodology used in these ratings was Passenger Airlines published in August 2021 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1277191. Alternatively, please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.

LIST OF AFFECTED RATINGS

Affirmations:

..Issuer: easyJet FinCo B.V.

....BACKED Senior Unsecured Medium-Term Note Program, Affirmed (P)Baa3

....BACKED Senior Unsecured Regular Bond/Debenture, Affirmed Baa3

..Issuer: easyJet Plc

....LT Issuer Rating, Affirmed Baa3

....BACKED Senior Unsecured Medium-Term Note Program, Affirmed (P)Baa3

....BACKED Senior Unsecured Regular Bond/Debenture, Affirmed Baa3

Outlook Actions:

..Issuer: easyJet FinCo B.V.

....Outlook, Changed To Stable From Negative

..Issuer: easyJet Plc

....Outlook, Changed To Stable From Negative

COMPANY PROFILE

Established in 1995, easyJet Plc is one of the largest low-cost airlines in Europe, with around 96 million passengers and annual sales of GBP6.4 billion in fiscal 2019. As of June 2021, easyJet operated 323 (183 owned) aircraft, and operated 916 routes as of 31 March 2021.

easyJet has been listed on the London Stock Exchange since 2000. The family of the founder, Sir Stelios Haji-Ioannou, remains the largest shareholder of the group, with a stake of 25.34% as of 8 September 2021.

REGULATORY DISCLOSURES

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.

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 http://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1288435.

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/CITATIONS

[1] Ryanair company website traffic statistics

[2] Wizz Air company website passenger traffic stats

[3] US Transportation Security Administration website checkpoint travel numbers

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.

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.
One Canada Square
Canary Wharf
London E14 5FA
United Kingdom
JOURNALISTS: 44 20 7772 5456
Client Service: 44 20 7772 5454

No Related Data.
© 2021 Moody’s Corporation, Moody’s Investors Service, Inc., Moody’s Analytics, Inc. and/or their licensors and affiliates (collectively, “MOODY’S”). All rights reserved.

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