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Rating Action:

Moody's assigns Ba1 rating to SATA Air Açores, S.A. guaranteed notes

05 Nov 2020

Frankfurt am Main, November 05, 2020 -- Moody's Investors Service ("Moody's") has today assigned a Ba1 rating to the EUR35 million guaranteed senior unsecured notes due 2030 (the "Notes") issued by SATA Air Acores, S.A. ("SATA").

The assigned Ba1 rating is based solely upon the unconditional and irrevocable guarantee of scheduled principal and interest payment (the "Guarantee") provided by the Autonomous Region of Azores ("Azores", Ba1 positive).

SATA is the current parent company of the SATA Group and is mainly responsible for the provision of connections between the 9 Azores islands under public service obligations.

RATINGS RATIONALE

The Ba1 rating assigned to SATA's EUR35 million senior unsecured Notes is in line with the long-term issuer rating of Azores, which provides an unconditional and irrevocable guarantee of scheduled principal and interest payment. The terms of the guarantee are sufficient for credit substitution in accordance with Moody's Rating Transactions Based on the Credit Substitution Approach: Letter of Credit-backed, Insured and Guaranteed Debts methodology.

In particular, Moody's considers that the terms of the guarantee have characteristics of strong guarantee arrangements:

- the guarantee is irrevocable and unconditional and ensures that obligations under the guarantee rank pari and passu with Azores' present or future, direct, unconditional, unsecured and unsubordinated obligations

- the guarantee promises full and timely payment of the obligation including interest and principal payments

- the guarantee covers payment -- not merely collection

- the guarantee extends as long as the term of the underlying obligation will be reinstated and become effective again if Noteholders have to return moneys after the date on which guarantee has expired due to any insolvency proceeding or any court proceeding

- the guarantee is enforceable against the guarantor and also in accordance with Portuguese law

- the guarantee cannot be transferred, assigned or amended by the guarantor

The guarantee does not explicitly state that it waives all suretyship defenses, but there are provisions in the Deed of Guarantee stating that the guarantor would pay all obligations in full without any exception, reserve, condition or claim. All payments to be made by the Guarantor under the guarantee shall also be made without set off or counterclaim and without deduction for or on account of any present or future taxes, duties, withholdings or other charges.

The proposed guarantee offered to noteholders forms part of a €133 million state aid request that the region of Acores has addressed to the European Commission (EC) under the EC's Rescue & Restructuring framework. The state aid has been approved by the EC in August 2020 for a period of six months in line with the EC's guideline under the Rescue & Restructuring framework. SATA and its guarantor will have to submit a restructuring plan to the EC over at the latest by February 2021 under the Rescue & Restructuring framework. The risks that the EC might not approve the restructuring plan to be submitted or that SATA does not submit a restructuring plan to the EC for approval are covered in the terms and conditions of the notes through an early redemption clause. In those two events SATA and its guarantor would have to notify noteholders of the occurrence of a mandatory redemption event. Noteholders would demand redemption of the notes to the government of Acores on first demand under the guarantee of the notes. Noteholders are also protected through a put option under certain other circumstances and could claim repayment of the notes to the issuer and the region of Acores that would be severally and jointly liable for the repayment of the notes.

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

The guaranteed senior unsecured debt rating is fundamentally linked to the rating of Azores. Any change in Azores' rating would be expected to translate into a rating change on the Notes.

PRINCIPAL METHODOLOGY

The principal methodology used in this rating was Rating Transactions Based on the Credit Substitution Approach: Letter of Credit-backed, Insured and Guaranteed Debts published in May 2017 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1068154. Alternatively, please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.

CORPORATE PROFILE

SATA is the current parent company of the SATA Group and is mainly responsible for the provision of connections between the 9 Azores islands under public service obligations. SATA holds 100% of the airline company Azores Airlines. Further to operating routes under PSO -- the linking Lisbon to Santa Maria, Horta and Pico islands and routes linking Ponta Delgada (São Miguel Island) to Funchal (Madeira Island) -- Azores Airlines operates international flights to countries with important Portuguese and Azorean communities, especially in North America.

The SATA Group plays a very important role in inter-island connections, as well in connections between the AAR and Portugal mainland, thereby assuring territorial cohesion.

SATA Group is responsible for the operation and management of Graciosa, Pico, São Jorge and Corvo islands airfields, as well as Flores island terminal, through the company SATA Gestão de Aeródromos

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.

The rating is 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.

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.

Stanislas Duquesnoy
Senior Vice President
Corporate Finance Group
Moody's Deutschland GmbH
An der Welle 5
Frankfurt am Main 60322
Germany
JOURNALISTS: 44 20 7772 5456
Client Service: 44 20 7772 5454

Christian Hendker, CFA
Associate Managing Director
Corporate Finance Group
JOURNALISTS: 44 20 7772 5456
Client Service: 44 20 7772 5454

Releasing Office:
Moody's Deutschland GmbH
An der Welle 5
Frankfurt am Main 60322
Germany
JOURNALISTS: 44 20 7772 5456
Client Service: 44 20 7772 5454

No Related Data.
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