New York, May 27, 2020 -- Moody's Investors Service ("Moody's") assigned a Ba1 rating to Air Canada's
Pass-Through Certificates, Series 2020-1 the company
announced earlier today: $315.783 million Class C
with a legal final maturity date of July 15, 2026 (the "Certificates").
The scheduled maturity date is also July 15, 2026. There
will be no liquidity facility for the Certificates and the obligation
is a bullet maturity. Air Canada will use the proceeds for general
corporate purposes. The Certificates will be secured on a junior
basis by the 27 aircraft that secure the company's Series 2015-1,
Series 2015-2 and Series 2017-1 EETCs (the "Three
EETCS"). The Corporate Family Rating (CFR) of Air Canada
is Ba1 and is unaffected by the issuance of the Certificates. The
Ba1 rating of the Certificates and all other ratings assigned to Air Canada
including the Ba1 corporate family rating and its other Enhanced Equipment
Trust Certificates ("EETCs") are on review for downgrade.
The spread of the coronavirus outbreak, the weakened global economic
outlook, low oil prices and asset price declines are sustaining
a severe and extensive credit shock across many sectors, regions
and markets. The combined credit effects of these developments
are unprecedented. The passenger airline sector is one of the sectors
most significantly affected by the shock given its exposure to travel
restrictions and sensitivity to consumer demand and sentiment.
Passenger demand is currently down by more than 90% across most
of the world, excluding a few countries in Asia. Moody's
regards the coronavirus outbreak as a social risk under its ESG framework,
given the substantial implications for public health and safety.
The impacts of the coronavirus are significantly curtailing airlines'
need for aircraft, at least in the near term, which will likely
pressure equity cushions of EETC transactions.
RATINGS RATIONALE
The Ba1 rating of the Certificates reflects an equity cushion of less
than ten percent before priority claims that would be recognized under
an EETC default scenario. This estimate is on a blended basis across
the Three EETCs. The rating also considers the credit quality of
Air Canada and the legal protections afforded the Enhanced Equipment Trust
Certificates, including being subject to the Cape Town Convention
as implemented in the federal and provincial laws of Canada. The
Series 2020-1 Class C equipment notes will be cross-defaulted
within each series if senior classes of such series remain outstanding,
but not across the Three EETCs until the senior classes of each are paid
off. For example, under an insolvency of Air Canada where
it rejects one or two but not all three of the Three EETCs, the
Class C EETC(s) that are not rejected will not be in default pursuant
to the terms of the Series 2020-1 Class C equipment notes.
The Series 2020-1 Class C equipment notes will be cross-collateralized
across the Three EETCs. Moody's currently estimates the blended
loan-to-value at about 92% before priority claims
of up to 10 percentage points under an EETC default scenario.
The ratings of the EETCs reflect Moody's belief that Air Canada would
retain the aircraft in each transaction under a reorganization scenario
because of the importance of these models to the fleet and network strategy
over the remaining lives of each transaction, their relatively young
ages and fuel efficiency.
The 2015-1 transaction (unrated by Moody's) is secured by
eight 787-9s and one 787-8. Moody's estimates the
peak LTVs of the Class A and Class B at about 60% and 75%,
respectively. The scheduled final payment dates are March 15,
2027 for the Class A and March 15, 2023 for the Class B.
The 2015-2 transaction is secured by two 777-300ERs and
three 787-9s. Moody's estimates the peak LTVs of the Class
AA (rated A1), Class A (rated A3) and Class B (rated Baa2) at about
53%, 74% and 88%, respectively.
These occur near the scheduled final payment dates of December 15,
2027 for the Class AA and Class A and December 15, 2023 for the
Class B.
The 2017-1 transaction is secured by nine 737 MAX 8s and four 787-9s.
Moody's anticipates that the 737 MAX will return to service in a timeframe
that will not lead to undue pressure on its market value. Moody's
estimates the peak LTVs of the Class AA (rated A1), Class A (rated
A3) and Class B (rated Baa2) at about 45%, 64% and
79%, respectively. The scheduled final payment dates
are January 15, 2030 for the Class AA and Class A and January 15,
2026 for the Class B.
FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS
Changes in EETC ratings can result from any combination of changes in
the underlying credit quality or ratings of the company, Moody's
opinion of the importance of the aircraft collateral to the operations
and/or its estimates of current and projected aircraft market values,
which will affect estimates of loan-to-value. Near-term
updates to Moody's estimates of aircraft market values that reduce
the respective equity cushion could lead to further downgrades.
The methodologies used in this rating were Passenger Airline Industry
published in April 2018 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1091811,
and Enhanced Equipment Trust and Equipment Trust Certificates published
in July 2018 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1125852.
Alternatively, please see the Rating Methodologies page on www.moodys.com
for a copy of these methodologies.
The following rating actions were taken:
Assignments:
..Issuer: Air Canada Series 2020-1 Pass Through
Trusts
....Senior Secured Enhanced Equipment Trust
Class C, Assigned Ba1; Placed Under Review for Downgrade
Outlook Actions:
..Issuer: Air Canada Series 2020-1 Pass Through
Trusts
....Outlook, Assigned Rating Under Review
Air Canada is the largest provider of scheduled airline passenger services
within, and to and from Canada. Revenue in 2019 was CAD19.1
billion. The company is headquartered in Saint-Laurent,
Quebec, Canada.
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 rating has 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_1133569.
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.
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, CFA
Senior Vice President
Corporate Finance Group
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653
Russell Solomon
Associate Managing Director
Corporate Finance Group
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653
Releasing Office:
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653
